Vasicek Model

The Vasicek model is a mathematical way to describe how interest rates change over time. It assumes that rates tend to move smoothly around a long-term average, sometimes drifting higher or lower but always pulling back toward that mean. The model captures the random fluctuations of rates while incorporating the idea that they are influenced by economic factors. It’s widely used in finance for pricing bonds and managing interest rate risk, providing a realistic yet manageable way to predict future interest rate movements based on current data.