Following the n factor HJM framework, let the forward rate F(t, T) be governed by the following dynamics Show that the covariance of the increments of F(t,T 1 ) and F(t,T 2 ) is given by Deduce that under the one factor model, which corresponds to n 1, the changes in F(t,T 1 ) and F(t,T 2 ) are ful...

In the nfactor HJM HeathJarrowMorton framework the dynamics of the forward rate FtT are given by FtT ...

Following the n-factor HJM framework, let the forward rate F(t, T) be governed by the following dynamics

Question:

Following the n-factor HJM framework, let the forward rate F(t, T) be governed by the following dynamics

S F(t, T) = F(0, T) + a(u, T) du + + i=l ;(u, T) dZ(u).

Show that the covariance of the increments of F(t,T₁) and F(t,T₂) is given by

n (t, );(t, 2). i=1 Deduce that under the one-factor model, which corresponds to n = 1, the changes in F(t,T₁) and F(t,T₂) are fully correlated.

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Mathematical Models Of Financial Derivative

ISBN: 9783642447938

2nd Edition

Authors: Yue-Kuen Kwok

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Question Posted: Nov 30, 2023 07:31 AM

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Following the n-factor HJM framework, let the forward rate F(t, T) be governed by the following dynamics

Question:

S F(t, T) = F(0, T) + a(u, T) du + + ΣΙ i=l σ;(u, T) dZ¡(u).

Step by Step Answer:

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Mathematical Models Of Financial Derivative

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