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Basic Question 5 of 7
The main shortcoming of the Vasicek model is that:
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.
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.
User Contributed Comments 1
| User | Comment |
|---|---|
| JNW1980 | Why wouldn't this be the other way around? Reality is showing interest rates can indeed be negative. Wouldn't a model that accounts for that be better than one that doesn't all else given equal? |
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Learning Outcome Statements
describe term structure models and how they are used.
CFA® 2025 Level II Curriculum, Volume 4, Module 27.