Heath, Jarrow, & Morton (1989, HJM) develop a framework in which all interest rate models can be expressed. The starting point is a continuum of zero coupon bonds, or, equivalently, of instantaneous forward interest rates. In this way, the whole of the yield curve is modelled, according to some...

In this paper we develop a framework for discretely compounding interest rates which is based on the forward price process approach. This approach has a number of advantages, in particular in the current market environment. Compared to the classical as well as the Lévy Libor market model, it...

In this paper we outline the European interest rate swaption pricing formula from first principles using the Martingale Representation Theorem and the annuity measure. This leads to an expression that allows us to apply the generalized Black-Scholes result. We show that a swaption pricing...

This paper deals with issues related to the choice of the interest rate model to price interest rate derivatives. After the development of the market models, choosing the interest rate model is become almost a trivial task. However their use not always is possible, so that the problem of...