Cox-Ingersoll-Ross Model

The Cox-Ingersoll-Ross (CIR) model is a mathematical way to describe how interest rates change over time. It predicts future rates based on current rates, considering that higher rates tend to move up more smoothly and tend to revert to a normal level rather than drifting indefinitely. The model incorporates random fluctuations, reflecting market uncertainty, but also ensures that interest rates stay positive. It’s widely used by financial professionals to price interest rate derivatives and manage risk, helping them understand potential future movements in interest rates and their impact on investments.