Vasicek Model Vs Cox Ingersoll Ross Model: A Comparison
1. Context
In this video from the FRM Part 2 curriculum, we take a comparative look at two one factor short term interest rate models: the Vasicek Model and the Cox Ingersoll Ross (CIR) Model. We compare these models along the following lines or aspects:
- Category: Arbitrage Free vs Equilibrium
- Mean Reversion
- Basis Point Volatility
- Negative Rates
- Terminal Distribution
- Prices of OTM Options
- Mathematical Tractability
For more information about the FRM Part 2 preparation course, please visit the course page.
| Area | Market Risk |
| Reading | The Art of Term Structure Models: Volatility and Distribution |
| Reference | Bruce Tuckman and Angel Serrat, Chapter 10. The Art of Term Structure Models: Volatility and Distribution In Fixed Income Securities, 3rd Edition, (Hoboken, NJ: John Wiley & Sons, 2011). |