Bond Pricing in Stochastic Volatility Models

In this report we compute bond prices where the short rate is described by the classic versions of the Vasiček model and the CIR model. We state the basic properties concerning parameter monotonicity and termstructures for these models. We then let the volatility be described by a stochastic process of the same type as the short rate process and use Matlab to generate sampling paths from which we calculate bond prices in these models with stochastic volatility. We also use asymptotic methods to derive a stochastic volatility alternative to the classic Vasiček model. These bond prices are then compared to the prices in the classic versions of respective model. We also investigate parameter monotonicity in these