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A risk management professional working at a fixed-income investment fund is evaluating different methods to improve the fund's ability to model the term structure of interest rates. The professional is looking to implement a model that encapsulates the features of mean reversion and incorporates a risk premium. To achieve this, the professional is considering the Vasicek model.
A
The model incorporates mean reversion and a drift of zero.
B
The model incorporates mean reversion and models the risk premium as a component of the drift.
C
The model incorporates a drift of zero, but it cannot incorporate a risk premium.
D
The model can be used to model the time-varying risk premium, but it cannot incorporate mean reversion.