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Financial Risk Manager Part 2

Financial Risk Manager Part 2

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As part of enhancing the fund’s options pricing strategy, the Chief Risk Officer (CRO) of a hedge fund has instructed the risk team to develop a term-structure model that can accurately adjust interest rates. The risk team is evaluating different interest rate models, specifically those that incorporate either time-dependent drift or time-dependent volatility functions. Identify which of the following options correctly represents the type of model being described.

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