This section mainly introduces the implementation process of short-rate and discount, which is applied in Tree Engine. As a key part of Tree Engine, the class \(VModel\) implements the single-factor Vasicek model to calculate short-rate and discount by utilizing continuous compounding. Here, the implementation process is introduced.
- Since the short-rate at the current time point is independent from the short-rate at the previous time point, there is no need to calculate the short-rate in this module.
- For implementing the generic Tree framework, this model only performs the calculation of some trinomial tree related parameters.
- The discount is calculated at time point \(t\) with the duration \(dt\) based on the short-rate.