Financial Risk Manager Part 2

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Explanation:

The Vasicek model equation appears as:

dr = k(\theta - r)dt + \sigma dw

\theta = r_\infty + \left(\frac{\lambda}{k}\right)

= 6.18 + \left(\frac{0.227}{0.02}\right) = 17.53\%

The change in short-term rate $= 0.020(17.53\% - 5.212\%)\left(\frac{1}{12}\right) + 125 \times 0.14 = 19.553$ basis points

The volatility over the next month $= 125 \times \sqrt{\left(\frac{1}{12}\right)} = 36.08$ basis points

Explanation:

The Vasicek model equation appears as:

dr = k(\theta - r)dt + \sigma dw

\theta = r_\infty + \left(\frac{\lambda}{k}\right)

= 6.18 + \left(\frac{0.227}{0.02}\right) = 17.53\%

The change in short-term rate $= 0.020(17.53\% - 5.212\%)\left(\frac{1}{12}\right) + 125 \times 0.14 = 19.553$ basis points

The volatility over the next month $= 125 \times \sqrt{\left(\frac{1}{12}\right)} = 36.08$ basis points

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UAnonymous

Last updated: July 5, 2026 at 07:18

A 36.08 basis point change in the short-term rate and a standard deviation of 1.70 basis points.

A 1.70 basis points change in the short-term rate and a standard deviation of 36.08 basis points.

A 19.553 basis points change in the short-term rate and a standard deviation of 36.08 basis points.

A 35.04 basis point change in the short-term rate and a standard deviation of 1.54 basis points.