Actuarial Outpost ASM 20.2 question
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#1
07-07-2014, 10:14 PM
 SuriKate Member CAS Join Date: Jun 2013 Studying for Exam 5 Posts: 88
ASM 20.2 question

dr(t) = 0.3(0.05-r(t))dt + 0.01Root(r(t))dZ(t)

sharpe ratio is 20Root(r(t))
If sharpe ratio is changed to 15Root(r(t)), an equivalent interest rate process is given by

dr*(t)= a(b-r*(t))dt + sigmaxRoot(r*(t))dZ(t)

Determine a, b and sigma

I am not quite understanding the solution. Could someone help to solve this please?

Thank you
#2
07-07-2014, 10:27 PM
 What A Noob Member CAS SOA Join Date: Feb 2014 Studying for MLC College: University of Manitoba Favorite beer: Pepsi Posts: 86

do the next two questions and see the solutions and you will understand
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