(18b)
Proof. See Appendix A.
Conditional Expectation of the Drift Term (CEDT). Similarly, we
can calculate the conditional expectation of the drift term and replace
the random drift term by the conditional expectation.
Proposition 2. Assume the forward rate follows the
dynamic (9), with the two known endpoints given by and .
Based on the conditional expectation of the drift term , the drift of