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Vasicek model

A trajectory of the short rate and the corresponding yield curves at T=0 (purple) and two later points in time

In finance, the Vasicek model is a mathematical model describing the evolution of interest rates. It is a type of one-factor short-rate model as it describes interest rate movements as driven by only one source of market risk. The model can be used in the valuation of interest rate derivatives, and has also been adapted for credit markets. It was introduced in 1977 by Oldřich Vašíček,[1] and can be also seen as a stochastic investment model.

  1. ^ Vasicek, O. (1977). "An equilibrium characterization of the term structure". Journal of Financial Economics. 5 (2): 177–188. CiteSeerX 10.1.1.164.447. doi:10.1016/0304-405X(77)90016-2.

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