Classes of Interest Rate Models Under the HJM Framework

Carl Chiarella and Oh-Kang Kwon
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Oh-Kang Kwon: University of Sydney

No 13, Research Paper Series from Quantitative Finance Research Centre, University of Technology, Sydney

Abstract: Although the HJM term structure model is widely accepted as the most general and perhaps the most consistent, framework under which to study interest rate derivatives, the earlier models of Vasicek, Cox-Ingersoll-Ross, Hull-White, and Black-Karasinki remain popuar among both academics and practitioners. It is often stated that these models are special cases of the HJM framework, but the precise links have not been fully established in the literature. By beginning with certain forward rate volatility processes, it is possible to obtain classes of interest model under the HJM framework that closely resemble the traditional models listed above. Further, greater insight into the dyanmics of the interest rate process emerges as a result of natural links being established between the model parameters and maret observed variables.

Pages: 18 pages
Date: 1999-08-01
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Citations: View citations in EconPapers (18)

Published as: Chaierlla, C. and Kwon, O., 2001, "Classes of Interest Rate Models Under the HJM Framework", Asia-Pacific Financial Markets, 8(1), 1-22.

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