This paper studies the theoretical features and the empirical implications of one-factor term structure models, focusing on Vasicek model and Cox-Ingersoll-Ross model. Principal component analysis shows that one-factor term structure models can explain the dynamics of the term structure of Korea. Vasicek model and Cox-Ingersoll-Ross model are rejected statistically from an empirical test using generalized method of moment(GMM). A general model with heteroskedastic variance term, which varies with interest rate levels, fits best to the interest rate dynamics of Korea.
