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CFA Level 2
Fixed Income

Characteristics of the Vasicek Interest Rate Model

Very Hard Term Structure Dynamics Interest Rate Models

In the context of interest rate models, understanding the nature of short-term and long-term interest rates is crucial for pricing fixed income securities accurately.

Consider the Vasicek model, a popular one-factor interest rate model. The model is used to describe the evolution of interest rates over time. Specifically, the Vasicek model assumes that the short rate follows a mean-reverting process. The parameters involved include the long-term mean interest rate, the speed of mean reversion, and the volatility of the interest rate.

Given this context, which of the following statements correctly describes a characteristic implication of the Vasicek model?

Hint

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