- CFA Exams
- CFA Exam: Level II 2021
- Study Session 12. Fixed Income (1)
- Reading 32. The Term Structure and Interest Rate Dynamics
- Subject 6. Modern Term Structure Models
CFA Practice Question
Under the Ho-Lee model, the probability that the yield curve can move up or down at each node is called the "implied risk-neutral probability." The Ho-Lee model:
B. does not assume market professionals are risk-neutral.
C. assumes market professionals are risk-averse.
A. assumes market professionals are risk-neutral.
B. does not assume market professionals are risk-neutral.
C. assumes market professionals are risk-averse.
Correct Answer: B
The name is misleading: the model does not make such an assumption.
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