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Advanced Fixed Income Analysis, 2nd Edition by Michele Lizzio, Moorad Choudhry

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Chapter 4

Interest-Rate Models II

Abstract

This chapter is a continuation of the precedent, in which we consider multi-factor and whole yield curve models. In particular, we deepen the Health-Jarrow-Morton model in order to avoid the limitation of the short-rate models previously discussed, considering the dynamics of the entire term-structure, which is observable in a real world. This chapter concludes with a comparison between one-factor and multi-factor models, indicating the choice of the model.

Keywords

Interest rate modelling

Multi-factor models

Short rate

Term structure model

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