Question: Francesca DAnconia, a fixed income quantitative analyst, is a part of a team creating a report on methods for modeling the evolution of short-term interest
Francesca DAnconia, a fixed income quantitative analyst, is a part of a team creating a report on methods for modeling the evolution of short-term interest rates. DAnconia makes the following statements in a team meeting:
| Statement #1: | An advantage of the Ho-Lee model over both the Cox-Ingersoll-Ross and Vasicek models is the smaller number of required parameter estimates required to implement the model. |
| Statement #2: | The Cox-Ingersoll-Ross model allows interest rates to be mean-reverting, but the Vasicek model does not allow for mean-reversion. |
DAnconia is most likely:
A) correct with respect to statement 2 only.
B) correct with respect to statement 1 only.
C) correct with respect to both statements.
D) incorrect with respect to both statements.
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