Abstract
HJM one-factor models (including Hull White) have many applications within finance. The risk neutral measure is one of the most common measures to use with HJM models. Since the risk neutral numeraire (money market account) and bond are driven by the same Brownian motion it is frequently assumed that the log correlation between these assets is perfect over an arbitrary interval. Our paper proves that the log correlation over is not perfect and we calculate the correct correlation for one factor HJM models. Finally using Monte Carlo Simulation we demonstrate our correlations are correct and using perfect correlation can lead to significant erroneous results.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
