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CFA Level 2
Fixed Income

Key Characteristic of the Vasicek Model

Very Easy Term Structure Dynamics Interest Rate Models

In the context of fixed income securities, the term structure of interest rates is crucial in determining the prices of bonds. An interest rate model helps to explain how interest rates evolve over time. One of the simplest and most widely-known models for representing the term structure of interest rates is the Vasicek model. It describes interest rate changes as a mean-reverting process. Which of the following best describes a key characteristic of the Vasicek interest rate model?

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