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Heath Jarrow Merton – HJM 3 – Factor Interest Rate Model

SKU 00052
In stock
Product Details

About the course

This course consists of an EXCEL file that illustrates the construction of a Heath-Jarrow-Merton (HJM) no arbitrage multifactor (three factor) interest rate model.

This includes the determination of

  • Brownian Shocks using a normally scaled random number generator
  • Drifts using the principal component factors for volatility of the forward rate term structure
  • Spot & forward rates using the initial zero rate yield rates, principal component factors and total drift
  • Price/ discount factors using the derived spot & forward rates
  • True & Path bond prices

Learning Objectives

After taking this course you will be able to:

  • Calculate Brownian shocks
  • Calculate the principal component factor based drifts
  • Construct the HJM interest rate model comprising of a spot and forwards rates tree
  • Calculate the discount factor or one-period price tree from the HJM interest rate model
  • Calculate the value of a bond using the price tree


Knowledge of EXCEL, mathematics and probability. The user of the EXCEL sheet should have already determined or obtained the zero rate term structure & the principal components (PC) for volatility of the forward rate term structure based on the underlying yield rates. Note: Derivation of zero and forward rates & PCs are not part of this EXCEL file.

Target Audience

The course is aimed at individuals responsible for the pricing of money market, derivatives and structured products as well as those involved in asset liability management and risk management, including the simulation and stress testing of rate sensitive asset and liability portfolios within banks, insurance companies and mutual funds.

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