Characteristics of the Vasicek Model

In the context of interest rate models, particularly those used to understand the term structure of interest rates, several theories have been proposed. These theories attempt to explain how different maturities of interest rates are related to each other and how they evolve over time.

One widely recognized model is the Vasicek model, which is based on the assumption that interest rates follow a mean-reverting process. This means that interest rates tend to move back towards a long-term average over time. Understanding the implications of this model can help investors in managing interest rate risk, making strategic investment decisions, and calibrating their fixed income portfolios.

Given this context, which of the following characteristics is most closely associated with the Vasicek model?