Heath-Jarrow-Morton Framework

The Heath-Jarrow-Morton (HJM) framework is a mathematical model used in finance to describe the evolution of interest rates over time. It focuses on the entire future yield curve, which shows interest rates for different maturities. By modeling the dynamics of all these rates simultaneously, HJM helps predict how interest rates might change, enabling better management of interest rate risks and the pricing of financial products like bonds and derivatives. It provides a flexible, consistent way to understand and simulate the movement of interest rates in a realistic way.