In the Cox-Ingersoll-Ross or CIR Model,interest Rates Are Specified by the Following

question 10

Multiple Choice

In the Cox-Ingersoll-Ross or CIR model,interest rates are specified by the following stochastic process: $d r _ { t } = k \left( \theta - r _ { t } \right) d t + \sigma \sqrt { r _ { t } } d W _ { t }$ One attractive feature of this process relative to the Vasicek interest rate process $d r _ { t } = k \left( \theta - r _ { t } \right) d t + \sigma d W _ { t }$ is that

• A)Interest rates are always non-negative in CIR while they may be negative in the Vasicek model.
• B)There are parameter restrictions which guarantee non-negative stochastic interest rates in the CIR model,but there are no such restrictions possible in the Vasicek model.
• C)It has extra parameters,so can fit observed yield curves better.
• D)It allows for imperfect instantaneous correlation between rates of different maturities,whereas in the Vasicek model,they are perfectly correlated.

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