Assume $X_t$ is a multivariate Ornstein-Uhlenbeck process, i.e. $$dX_t=\sigma dB_t-AX_tdt$$ and the spot interest rate evolves by the following equation: $$r_t=a+b\cdot X_t.$$ After solving for $X_t$ ...
I am looking at closed-form options approximations, in particular the Bjerksund-Stensland model. I have run into a very basic question. How should I scale the input variables in regard to time? My ...