Heath–Jarrow–Morton (HJM) Methodology
As we have seen in Chap. 5, short-rate models are not always flexible enough to calibrating them to the observed initial term-structure. In the late eighties, Heath, Jarrow and Morton (henceforth HJM) (Econometrica 60:77–105, 1992) proposed a new framework for modeling the entire forward curve directly. This chapter provides the essentials of the HJM framework.
KeywordsForward Rate Forward Curve LIBOR Market Model Novikov Condition Monotone Class Theorem
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