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In this scenario, we are discussing or describing the implementation of the HJM (Heath Jarrow and Morton) model that is one of the important models, mainly used in simulation with the Monte Carlo method for collecting the several years’ interest rate data and process them for analysis. The HJM model implementation mainly used the prices of several years applying on zero-coupon based terms and also the several interest rate options of many years that include the caps and floors with Monte Carlo Simulation.
HJM stands for the Heath Jarrow and Morton framework Model used in simulation with the Monte Carlo method. This method is mainly used for estimate the prices based on several time periods and according to their interest rate options.
And the interest rate applied on the prices is based on time period and these time periods are further divided into several categories such as: Short term rates, midterm rates and long term rates. And for representing all of the three rate terms development or implementation one common model is required, which is accomplished by the development or introduction of the Heath Jarrow Morton framework (HJM) model includes as the most comprises model that refers to the several model classes that are directly derived for model the dynamic or advance examples for forward rates technique. It’s the common framework for understanding the direct relationship between the drift and the volatility parameters used in the forward rates that are not dynamic in the nature. The principle component of this analysis method is to estimate the several figures or volatilities of the specific model from the old historical time series data useful in forward rates....