Heath-Jarrow-Morton Model - HJM Model
Categories: Financial Theory
The Heath-Jarrow-Morton Model, or HJM model, models instantaneous forward rate curves (which represent prices for futures contracts). It borrows from bond pricing, and while widely used, the HJM model is also highly criticized.
The HJM model assumes that volatility in futures contract markets can be predicted, because the direction and magnitude of volatility happens for a reason (or set of reasons), which is a different approach than is traditional.
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