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Arbitrage Theory in Continuous Time$
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Tomas Björk

Print publication date: 2004

Print ISBN-13: 9780199271269

Published to Oxford Scholarship Online: October 2005

DOI: 10.1093/0199271267.001.0001

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PRINTED FROM OXFORD SCHOLARSHIP ONLINE (oxford.universitypressscholarship.com). (c) Copyright Oxford University Press, 2021. All Rights Reserved. An individual user may print out a PDF of a single chapter of a monograph in OSO for personal use. date: 21 October 2021

Forward Rate Models

Forward Rate Models

(p.340) 23 Forward Rate Models
Arbitrage Theory in Continuous Time

Tomas Björk (Contributor Webpage)

Oxford University Press

The drawbacks associated with short rate models have prompted various authors to propose models that use more than one state variable. In the method proposed by Heath-Jarrow-Morton (HJM), the entire forward rate curve is chosen as the (infinite dimensional) state variable. This chapter discusses the HJM framework, martingale modelling, and the Musiela parameterization. Practice exercises are included.

Keywords:   short rate models, forward rate models, Heath-Jarrow-Morton, martingale modelling, Musiela parameterization

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