Financial Risk Manager Part 2

Ultimate access to all questions.

The CRO of a hedge fund asks the risk team to develop a term-structure model for fitting interest rates that is appropriate to use in the fund's options pricing practice. The risk team is evaluating a Ho-Lee model with time-dependent drift, and a Cox-Ingersoll-Ross model with time-dependent volatility. Which of the following is a correct description of the specified model?

Real Exam

Community

LLeetQuiz

In the Ho-Lee model, the drift of the interest rate process is presumed to be constant.

Loading comments...

In the Cox-Ingersoll-Ross model, the basis-point volatility of the short-term rate is presumed to be proportional to the square root of the rate.

In the Cox-Ingersoll-Ross model, the volatility of the short-term rate is presumed to decline exponentially to a constant long-run level.