Under the one-factor HJM framework, show that where E t Q denotes the expectation under the risk
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Under the one-factor HJM framework, show that
where EtQ denotes the expectation under the risk neutral measure Q conditional on information Ft. Explain why the forward rate F(t, T) is a biased estimator of r(T) under Q.
Transcribed Image Text:
T T Eglr(T)] = F(t, T) + E'q[√" (or(u, T) [" - E'o [f" (OF(u, T) [" OF(u, s) ds) du]. Q
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In the onefactor HeathJarrowMorton HJM model the dynamics of the short rate rt are given by the stoc...View the full answer
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