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Q-91. A senior risk manager at a hedge fund company is evaluating methods to improve the fund's ability to model interest rate term structures. The manager would like to adopt a model that is flexible enough to incorporate both mean reversion and a risk premium and considers the Vasicek model for this purpose. Which of the following statements is correct about 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.