Why is it assumed that the vasicek model taking In negative ir is a disadvantage? This is what schweser says and it doesn’t make sense to me. It should be that any model that allows for the use of interest rates to be negative has a great advantage. Why is that a problem?
In the past, people thought interest rate couldn’t be negative. But today people try to adjust IR models to have negative interest rates. If Schweser said that, this means Schweser isn’t updated and wrong
Color me shocked.
yeah.
There is also an error in a graphic of interest rate parity Schweser Level 2 (but the Curriculum is still correct). I posted my finding in the forum 2-3 days before the exam last year and luckily my karma paid me back.
yea given that interest rates have traded into negative territory in recent years it makes no sense that vasicek modeling in such rates should be a problem. anyway thanks for the confirmation Pierre.