Models with constant basis-point volatility permit interest rates to become negative. The basis-point volatility refers to the standard deviation of the changes in the value of a financial instrument. In models with constant basis-point volatility, the volatility does not change with the level of interest rates. This means that when interest rates are low, the model does not prevent them from becoming negative. This is a significant issue because negative interest rates can have various implications for financial markets, including affecting the profitability of financial institutions and distorting the pricing of financial instruments. The CIR model addresses this issue by ensuring that the short rate cannot become negative. This is achieved by making the basis-point volatility zero when the short rate is zero and ensuring that the drift is positive when the rate is zero. This feature of the CIR model is considered an improvement over models with constant basis-point volatility.

Choice B is incorrect. Models with constant basis-point volatility do allow interest rates to become positive, but this is not a primary issue associated with these models. In fact, positive interest rates are the norm in most economic conditions.