Cox-Ingersoll-Ross Model - Explained
What is theCox-Ingersoll-Ross Model?
If you still have questions or prefer to get help directly from an agent, please submit a request.
We’ll get back to you as soon as possible.
- Marketing, Advertising, Sales & PR
- Accounting, Taxation, and Reporting
- Professionalism & Career Development
Law, Transactions, & Risk Management
Government, Legal System, Administrative Law, & Constitutional Law Legal Disputes - Civil & Criminal Law Agency Law HR, Employment, Labor, & Discrimination Business Entities, Corporate Governance & Ownership Business Transactions, Antitrust, & Securities Law Real Estate, Personal, & Intellectual Property Commercial Law: Contract, Payments, Security Interests, & Bankruptcy Consumer Protection Insurance & Risk Management Immigration Law Environmental Protection Law Inheritance, Estates, and Trusts
- Business Management & Operations
- Economics, Finance, & Analytics
Table of ContentsWhat is the Cox-Ingersoll-Ross Model?How is the Cox-Ingersoll-Ross Model Used?Academic Research on Cox, Ingersoll, Ross Option-Pricing Model
What is the Cox-Ingersoll-Ross Model?
The Cox-Ingersoll-Ross model (CIR) is regarded as an interest rate model. It is a mathematical formula based on a stochastic differential equation in which one or more of the terms is a stochastic process, giving a solution known as a stochastic process. The Cox-Ingersoll-Ross model (CIR) is applicable in finance, it is a model that describes the evolution of interest rates. The CIR model is driven by market risk element, it is useful in modeling interest rate movements in the market. The model determines how interest rate evolve due to current volatility, mean rates and their spread. CIR uses mean reversion towards a long-term normal interest rate level.
How is the Cox-Ingersoll-Ross Model Used?
The Cox-Ingersoll-Ross (CIR) model was derived from the Vasicek Interest Rate model,which was also a mathematical formula used in the evaluation of interest rate movements. However, the Vasicek model does not include a square root component and it sometimes model negative interest rates. In the valuation process of interest rate derivatives, the Cox-Ingersoll-Ross model is often used. CIR explicitly describes the evolution of interest rates. John C. Cox, Jonathan E Ingersoll and Stephen A. Ross created the Cox-Ingersoll-Ross (CIR) model in 1985. CIR has an advantage over the Vasicek model because it does not allow for or model negative interest rates.