CAS Exam 7 Spring 2012, Question 14
Study guide: Exam 9
The Chief Risk Officer for an insurance company is considering U.S. Treasury interest rate models for the company's Enterprise Risk Management process.
Part a (0.75 points)
Provide the formula for the Vasicek model and briefly describe the process it models.
Part b (0.5 points)
Describe the key difference between the Cox, Ingersoll, Ross (CIR) model and the Vasicek model.
Part c (0.75 points)
Provide and support a recommendation as to which of the two models, Vasicek or CIR, is more appropriate to use in the current environment of historically low interest rates.
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