CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

The main shortcoming of the Vasicek model is that:

A. Interest rates may become negative, although the probability is fairly low.
B. The model is one-factor, meaning that there is only one stochastic driver of the process.
C. Interest rates volatility is assumed to be constant, which is not realistic.
Correct Answer: A

Like the CIR model, the Vasicek model is also a one-factor modeling method. However, the Vasicek model allows for negative interest rates. This is the biggest advantage of the CIR model.

User Contributed Comments 0

You need to log in first to add your comment.