The Heath - Jarrow - Morton Framework
نویسنده
چکیده
The Heath-Jarrow-Morton framework refers to a class of models that are derived by directly modeling the dynamics of instantaneous forward-rates. The central insight of this framework is to recognize that there is an explicit relationship between the drift and volatility parameters of the forward-rate dynamics in a no-arbitrage world. The familiar short-rate models can be derived in the HJM framework but in general, however, HJM models are non-Markovian. As a result, it is not possible to use the PDE-based computational approach for pricing derivatives. Instead, discrete-time HJM models and Monte-Carlo methods are often used in practice.
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