Are there any interest rate models that do not imply some form of expectation hypothesis. Expectation hypothesis states the mean value of the rate that is going to be observed in the future for a specific period, is equal to the forward rate that is observed in today's term structure that matches that period. However we know since 2008 short term rates are stuck at very low values, and they havent gone up even though 1y/2y rates imply the short term rates should go up through expectation hypothesis. Is there a risk neutral interest rate model that captures the current status of short term interest rates accurately;ex; simulated short term rates in the long horizon are still around 0%.

I see your point, but I don't think a posteriori realized movement can falsify the expectation.

you should clarify notions such as expectations hypothesis, efficient market, change of measure, martingale measure, pricing kernel, etc... for yourself.in short what you call the current status of short term interest rates under the expectation hypothesis is reflected in the term structure of interest ratesprecisely, so that is it and in this sense your question is either not well posed and needs to be negated, unless I do not understand what you are saying.it is tricky stuff. in a nutshell from a modeling perspective the state of the market at a given time, that is what you observe in prices of traded instruments on some date, say, reflects the fair cost of these instruments, that is the hedging costs in some sense. it is not saying anything about the path of assetsfor example. I say from a modeling perspective, because in actual fact I don't really see why this has to be this way.

I'm looking at this from a practitioner's point of view. The question is if the expectation hypothesis is used in the future evolution of the term structure, then the simulated scenarios will suggest that short term rates should go up (under a normal term structure condition)http://en.wikipedia.org/wiki/Yield_curv ... hesis"This theory perfectly explains the observation that yields usually move together. However, it fails to explain the persistence in the shape of the yield curve."Is there an interest rate evolution model that can capture the persistence of the shape of yield curve?

the persistence in the shape of the yield curve (i.e. its upward sloping nature most of the time) is attributed by academicians to the existence of a positive 'term premium'