Closed-form solution for generalized Vasicek dynamic term structure model with time-varying parameters and exponential yield curves

Abstract

In this paper I study a generalized Vasicek dynamic term structure model with time-varying parameters, where the short rate r is unbounded and the time to maturity for the exponential yield curve model is an exponential function of the short rate. Closed-form solutions are derived for two cases by function analysis technique, with the classical Vasicek equation used as a special case. The methods employed in this paper may have significance in the study of other aspects of finance.