linguistic:voice_change, structural:reformatting
Short-rate models

For the valuation of bond options, swaptions (i.e. options on swaps), and interest rate cap and floors (effectively options on the interest rate) various short-rate models have been developed (applicable, in fact, to interest rate derivatives generally). The best known of these are Black-Derman-Toy and Hull–White. These models describe the future evolution of interest rates by describing the future evolution of the short rate. The other major framework for interest rate modelling is the Heath–Jarrow–Morton framework (HJM). The distinction is that HJM gives an analytical description of the entire yield curve, rather than just the short rate. (The HJM framework incorporates the Brace–Gatarek–Musiela model and market models. And some of the short rate models can be straightforwardly expressed in the HJM framework.) For some purposes, e.g., valuation of mortgage-backed securities, this can be a big simplification; regardless, the framework is often preferred for models of higher dimension. Note that for the simpler options here, i.e. those mentioned initially, the Black model can instead be employed, with certain assumptions.