Abstract
Although the HJM term structure model is widely accepted as the mostgeneral, and perhaps the most consistent, framework under which to studyinterest rate derivatives, the earlier models of Vasicek,Cox–Ingersoll–Ross, Hull–White, andBlack–Karasinski remain popular among both academics andpractitioners. It is often stated that these models are special cases ofthe HJM framework, but the precise links have not been fully establishedin the literature. By beginning with certain forward rate volatilityprocesses, it is possible to obtain classes of interest models under theHJM framework that closely resemble the traditional models listed above.Further, greater insight into the dynamics of the interest rate processemerges as a result of natural links being established between the modelparameters and market observed variables.
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Chiarella, C., Kwon, O.K. Classes of Interest Rate Models under the HJM Framework. Asia-Pacific Financial Markets 8, 1–22 (2001). https://doi.org/10.1023/A:1011468322967
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DOI: https://doi.org/10.1023/A:1011468322967