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Quant & Pricing

Cox-Ingersoll-Ross Model

Also called: CIR model, CIR, square root process

The CIR model makes the short rate mean-reverting with volatility proportional to the square root of the rate, so volatility shrinks as rates approach zero and the rate cannot go negative. That square-root diffusion is the same process Heston uses for variance. The Feller condition sets when the boundary at zero is genuinely unreachable, and it is routinely violated by real calibrations.

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