Time Step

Figure 17.1 Different possible shapes of the yield curve evolving over time driven by a two-factor log-normal forward-rates HJM model. YC(0) denotes the initial yield curve and is the same for all figures. Notice how the change in shape is very complex, and the patterns are much richer than those that any one-factor model could provide: in particular, Figure 17.1 shows a case of inversion of the slope, Figure 17.2 displays a pronounced steepening and Figure 17.3 highlights the degree of curvature that can be introduced

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