What two parameters characterize the CIR model, and how do they affect interest rate dynamics?
The CIR model is characterized by two parameters: 𝜃 and σ². 𝜃 controls the mean reversion rate, and σ² determines the volatility of the interest rate. Higher 𝜃 values lead to a more stable interest rate environment, while higher σ² values result in greater interest rate fluctuations.