Introducing the factor Heath-Jarrow-Morton term structure modelling framework
A framework for rates that links real-world and risk-neutral measures is presented
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Andrei Lyashenko and Yevgeny Goncharov introduce a risk-neutral interest rate term structure modelling framework based on the factor modelling approach widely used to model yield curves in real-world applications. The new modelling framework is very attractive as it combines the simplicity, intuitiveness and computational efficiency of the factor modelling approach with the no-arbitrage rigour of pricing term structure models. This makes it a convenient practical
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