When market practitioners do prefer HJM models to short rates models when it comes to pricing derivatives (other than swaptions and caps, let say light exotics to exotics) ?
To be more specific, what are the features of the derivatives that's make forward curve models more appealing than short rate models ?
If you have a simple instrument, short rate models capture all the key variance, but they impose structure on the shape of forward volatility curves (and, usually, forward tilt) that is often far from realistic.
If you have instruments whose value is sensitive to what might happen with tilt or forward volatility, you need a multifactor model like HJM. Bermudan swaptions are a good example.
