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$\begingroup$ Is the HJM single or multiple factor? If it is multiple factor, how is it different to LMM? $\endgroup$

Trajan
– Trajan

2021-05-01 11:00:23 +00:00
Commented May 1, 2021 at 11:00
$\begingroup$ HJM is multiple factor (but, of course, one can choose to use a single factor version). LMM models term (1M, 3M) forward rate. HJM models instantaneous forward rate. $\endgroup$

ir7
– ir7

2021-05-01 11:08:11 +00:00
Commented May 1, 2021 at 11:08
$\begingroup$ Also, LMM specifies log-normal or shifted log-normal dynamics for each term forward rate under its specific $T$-forward measure, while HJM (with deterministic vol specification) dynamics for instantaneous forward rate s normal. $\endgroup$

ir7
– ir7

2021-05-01 11:35:50 +00:00
Commented May 1, 2021 at 11:35

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