New framework revolutionizes pricing of interest rate derivatives.
The article discusses a framework for modeling interest rates called HJM in a multi-curve setup. The researchers aim to create models that accurately price interest rate derivatives, focusing on Libor rates. They start by modeling OIS bond prices and then incorporate FRA contracts into the framework to ensure the model is free of arbitrage. The key findings include deriving models for the dynamics of Libor rates and pricing interest rate derivatives effectively within the HJM context.