A risk manager at a hedge fund is evaluating various models that can effectively incorporate mean reversion and a risk premium into the term structure of interest rates. What is true about the Vasicek model in this context?

Exam-Like

It incorporates the mean reversion feature and its drift is always zero.

9.1%

It incorporates the mean reversion feature and models the risk premium as a component of a constant or changing drift.

86.4%

It cannot incorporate risk premium and its drift is always zero.

0.0%

It cannot capture the mean reversion feature but can be used to model the time-varying risk premium.

4.5%

Financial Risk Manager Part 2