Cox-Ingersoll-Ross Model - CIR

Definition of 'Cox-Ingersoll-Ross Model - CIR '


A mathematical formula used to model interest rate movements driven by a sole source of market risk. The Cox-Ingersoll-Ross model (CIR model) believes that short-term interest rates can be represented via a square root diffusion model with a mean reversion. The CIR model is often used in the valuation of interest rate derivatives.

Investopedia explains 'Cox-Ingersoll-Ross Model - CIR '


The CIR model was developed in 1985 by John C. Cox, Jonathan E. Ingersoll and Stephen A. Ross as an offshoot of the Vasicek Interest Rate model. Like the CIR model, the Vasicek model is also a one-factor modeling method. However, the Vasicek model allows for negative interest rates. This is the biggest advantage of the CIR model.



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