Cox-Ingersoll-Ross Model - CIR

AAA

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.

RELATED TERMS
  1. Vasicek Interest Rate Model

    A method of modeling interest rate movement that describes the ...
  2. Real Interest Rate

    An interest rate that has been adjusted to remove the effects ...
  3. Interest Rate Options

    An investment tool whose payoff depends on the future level of ...
  4. Fixed Interest Rate

    An interest rate on a liability, such as a loan or mortgage, ...
  5. Federal Open Market Committee - ...

    The branch of the Federal Reserve Board that determines the direction ...
  6. Interest Rate

    The amount charged, expressed as a percentage of principal, by ...
Related Articles
  1. The 5 Things You Never Knew About Auto ...
    Credit & Loans

    The 5 Things You Never Knew About Auto ...

  2. Saving Money Or Paying Off Debt?
    Credit & Loans

    Saving Money Or Paying Off Debt?

  3. All Your Questions About Loan Interest ...
    Credit & Loans

    All Your Questions About Loan Interest ...

  4. Ebola's Economic Impacts on Liberia, ...
    Economics

    Ebola's Economic Impacts on Liberia, ...

comments powered by Disqus
Hot Definitions
  1. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  2. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  3. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  4. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  5. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
  6. Earnings Before Interest After Taxes - EBIAT

    A financial measure that is an indicator of a company's operating performance. EBIAT, which is equivalent to after-tax EBIT ...
Trading Center