Why is the most common interest-rate model used to describe the behavior of interest rates a one-factor model?
What will be an ideal response?
In practice, one-factor models are used because of the difficulty of applying even a two-factor model. In addition, there is empirical evidence that supports one-factor models. Thus, due to the greater simplicity and applicability of one-factor models, they are preferred over two-factor models.
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Fill in the blank(s) with the appropriate word(s).
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Fill in the blanks with correct word