CIR Model (Cox-Ingersoll-Ross Model)

The Cox-Ingersoll-Ross (CIR) model is a mathematical way to describe how interest rates change over time. It assumes that interest rates tend to move toward a long-term average, but experience random fluctuations. The model also incorporates the idea that when interest rates are low, they tend to increase, and when high, they tend to decrease—reflecting a natural mean reversion. This helps investors and policymakers predict future interest rate behavior more accurately, especially in fixed-income markets, by capturing both the randomness and the tendency of rates to stabilize over time.