Tomas Bjork concluded his three-part mini-course on Interest Rate Theory on Thursday morning with a story that is too fascinating for me not to reproduce here.
On the theme of positivity for forward rates in an HJM framework, he said that in 1996 he came across a very peculiar paper by Flesaker and Hughston titled Positive Interest. According to him, only a few times in your life you read a paper and really don't understand what is going on. Then you read more carefully, making sure that you know how the second line follows from the first, and how the third line follows from the second, and so forth until the end of the paper, thereby convincing yourself that the paper is correct, but still you really, really, don't understand what is going on. It is only during a third level of assimilation that you wake up one morning and fully understand the idea - in fact you ask yourself how could it possibly be any different.
Well, he says that as far as the Flesaker and Hughston paper goes, he is still stuck on the second level of understanding, together with most of us.