
Explanation:
The change in the short-term factor is computed using the formula:
Substituting the provided values yields
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Q.6528 An economist is utilizing the Gauss+ model to understand the evolution of interest rate factors over time. The model involves mean-reverting processes, where the expected change in the short-term factor is calculated. Given: the mean reversion speed parameter for the short-term factor , the medium-term rate , the current short-term rate , and the small time increment , what is the expected short-term factor change?
A
0.000034
B
0.000042
C
0.000052
D
0.000038
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