In finance, the Vasicek model is a mathematical model describing the evolution of interest rates. It is a type of "one-factor model" (more precisely, one factor short rate model) as it describes interest rate movements as driven by only one source of market risk. The model can be used in the valuation of interest rate derivatives, and has also been adapted for credit markets, although its use in the credit market is in principle wrong, implying negative probabilities (see for example Brigo and Mercurio (2006), Section 21.1.1). It was introduced in 1977 by Oldrich Vasicek and can be also seen as an stochastic investment model.
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