Financial Risk Manager Part 2
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There is an incredible improvement from the one-factor model to multifactor model in studying the term structure dynamics. Which of the following statements is correct regarding the well-known one-factor Vasicek model and the multifactor Gauss+ model?
A
Although the Vasicek model can explain a large fraction of term structure dynamics with merely one factor, it only has some limited uses for practitioners because the model structure is complex.
B
The Vasicek model can be used for computing the bond sensitivities to changes in interest rates. This is achieved through shifting the short-rate, re-computing the bond prices and calculating measures such as DV01 and durations.
C
The Vasicek model might be used to conduct relative-value trading, while the Gauss+ model is inappropriate for this purpose. However, both models can be thought of as a tool for hedging.
D
Although the Gauss+ model captures the empirical complexity of the term structure dynamics, its concepts and assumptions are not intuitive and the model tractability is severely harmed.