CFA Practice Question

There are 147 practice questions for this study session.

CFA Practice Question

In the CIR model, dr = a(b-r)dt + σ r1/2dz, the long-term interest rate is:

A. a
B. b
C. r
Correct Answer: B

The drift factor, a(b-r)dt, is exactly the same as in the Vasicek model. It ensures mean reversion of the interest rate towards the long run value b, with speed of adjustment governed by the strictly positive parameter a.

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