HJM-model is an interest model which is based on forward rates. Forward rates and the price of bonds could be deduced from each other, so we can get the no-arbitrage condition of HJM-model from the no-arbitrage condition of the bond price. If the model satisfy the condition, the drift could be represented by the diffusion.In practice, we need discrete HJM-model, and we calculate the no-arbitrage condition for discrete model.With the discrete model, we use the data from Chinese market to test HJM-model, and the result is much different from reality. Because HJM model do well in American market, we conclude that there is arbitrage in Chinese market. |