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In this chapter, we explore two of the most influential frameworks for modeling the evolution of interest rates: the Heath–Jarrow–Morton (HJM) model and the Brace–Gatarek–Musiela (BGM) model. These forward-rate–based approaches extend beyond short-rate models by directly describing the dynamics of the entire forward rate curve, providing a more flexible and market-consistent framework for pricing interest rate derivatives.

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Heath–Jarrow–Morton and BGM Models: Advanced Forward Rate Dynamics and Derivative Pricing with Boost

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  • 发表日期：

    2025年

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  • Aaron De La Rosa

摘要

In this chapter, we explore two of the most influential frameworks for modeling the evolution of interest rates: the Heath–Jarrow–Morton (HJM) model and the Brace–Gatarek–Musiela (BGM) model. These forward-rate–based approaches extend beyond short-rate models by directly describing the dynamics of the entire forward rate curve, providing a more flexible and market-consistent framework for pricing interest rate derivatives.