The Cox-Ingersoll-Ross (CIR) Model: Ensuring Positivity and Bond Valuation
Students often confuse CIR volatility with the Vasicek model. In Vasicek, volatility is constant, allowing rates to become negative. In CIR, the term ensures volatility vanishes at the origin. Another pitfall is neglecting the Feller condition, which is strictly required to prevent the process from reaching zero.
Institutional Reference: Advanced Stochastic Processes
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