This sub-kernel deals with the different path generations and path pricings. It takes as an input the 3 volatility vectors, the risk neutral drift vector and the present forward curve and generates \(N\) paths, \(k\) tenors wide and \(simYears/dt\) deep consisting on the instantaneous forward rate curves associated at each time-step into the future. Then they are fed into the provided pricer algorithm, which will calculate and output the price per path and the average of all prices is returned to the user. The HJM framework implementation allows to easily set the parallelism level via the UN parameter.
The dynamics of the path generation for the HJM framework follows the equation:
Below there is an Architectural diagram of the HJM MonteCarlo framework as it’s implemented.
