IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this article

The Heath, Jarrow, Morton Model

Listed author(s):
  • Oldrich Alfons Vasicek
Registered author(s):

    Equilibrium models of the term structure of interest rates, such as Vasicek (1977) and Cox et al. (1985), hereafter CIR, determine the equilibrium yield curve by modelling the dynamics of the short-term interest rate, specifying the market price of risk, and solving the resulting partial differential equation for bond prices. Several multi-factor extensions of the Vasicek and CIR framework have been advanced in the recent term structure literature using as additional factors different variables, such as the volatility of interest rates (see, e.g. Longstaff and Schwartz, 1992; Dai and Singleton, 2000), the slope of the term structure (Brennan and Schwartz, 1979; Schaefer and Schwartz, 1984), monetary policy rates (Bakshi and Chen, 1996), and inflation (Pennacchi, 1991; Sun, 1992). Since a no-arbitrage condition must hold in equilibrium, this brief article starts from the stated law of motion for bond prices to tersely show how their implied instantaneous forward rates have an evolution under the pricing measure that is fully characterized by the forward rate volatilities. Thus, the outcome of the article is the fundamental equation of the classic model contributed by Heath et al. (1992), hereafter HJM, which sets off with the study of the forward rates' no-arbitrage dynamics. By doing so, it shows that, despite its different angle and its apparent complex structure, the HJM model is fully consistent and has a clear link with standard equilibrium set-ups like those of the Vasicek and CIR type. This note was written in 1994. Copyright 2007 The Author Journal compilation 2007 Banca Monte dei Paschi di Siena SpA

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    File Function: link to full text
    Download Restriction: Access to full text is restricted to subscribers.

    As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

    Article provided by Banca Monte dei Paschi di Siena SpA in its journal Economic Notes.

    Volume (Year): 36 (2007)
    Issue (Month): 3 (November)
    Pages: 205-207

    in new window

    Handle: RePEc:bla:ecnote:v:36:y:2007:i:3:p:205-207
    Contact details of provider: Web page:

    Order Information: Web:

    No references listed on IDEAS
    You can help add them by filling out this form.

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:bla:ecnote:v:36:y:2007:i:3:p:205-207. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing)

    or (Christopher F. Baum)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.