Financial Risk Manager Part 2

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An analyst is looking at various models used to incorporate drift into term structure models. The Ho-Lee Model:

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A

Incorporates no-risk premium to the interest rate model allowing rates to vary according to their volatility.

B

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Incorporates drift as a premium to interest rates that remains constant over time.

C

Allows for a risk premium to be applied to interest rates that changes over time.

D

Incorporates drift into the model following the assumption that rates revert to the long-run equilibrium value.

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