CIR and Vasiek models - interest rate volatility

Has anyone done the “Self Tests” on Schweser website?

In the one for fixed income they have a question about a structural model assuming a constant level of volatility.

I chose the Vasicek model as the answer, because volatility does not increase with the interest rates in this model.

The answer says it’s the Cox-Ingersoll.


I agree with you there, from what I remember the CIR assumes volatility increases as rates increase whereas Vasicek assumes constant volatility.

+1. The only other significant difference is that CIR will only generate positive rates while in the Vasicek model rates can go negative.