Tuckman - Vasicek model (equation 9.9 - 9.11)

[emilioalzamora1]

Hi All,

Can someone please explain where the initial short rate (5.121%) in equation 9.11 (Tuckman,page 264) is coming from? I can't see any derivation nor I can't get to this myself.
Equation 9.10 stipulates how to get the long-run value of the short- rate, but the initial short-rate (5.121%) comes out of the blue.

Any input or ideas are highly appreciated!

Thank you!

 

[David Harper CFA FRM]

Hi @emilioalzamora1 I maybe missed where he developed the initial short-rate assumptions, but I didn't see it. I assumed both the r(0) = 5.138% in (9.5) and the 5.121% in 9.11 are just initial assumptions ... i just don't see them developed earlier. Sorry!

append: actually, I see the r(0) = 5.138% is used in (9.6) which is earlier, but it's still just an assumption there

 

[emilioalzamora1]

Hi David,

thanks for your immediate reply and your explanation!