Negative interest rates: why and how?

DOI10.1515/MS-2017-0040MaRDI QIDQ5363357zbMATH OpenOpenAlexFDO

Authors Philipp Hermann, M. Stehlík, Jozef Kiselak

Publication date 5 October 2017

Published in Mathematica Slovaca (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/1601.02246, http://hdl.handle.net/10533/232537

Mathematics Subject Classification ID

Ordinary differential equations and systems with randomness (34F05) Stochastic models in economics (91B70)

Abstract: The interest rates (or nominal yields) can be negative, this is an unavoidable fact which has already been visible during the Great Depression (1929-39). Nowadays we can find negative rates easily by e.g. auditing. Several theoretical and practical ideas how to model and eventually overcome empirical negative rates can be suggested, however, they are far beyond a simple practical realization. In this paper we discuss the dynamical reasons why negative interest rates can happen in the second order differential dynamics and how they can influence the variance and expectation of the interest rate process. Such issues are highly practical, involving e.g. banking sector and pension securities.

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• Log-gamma motion as flexible model for generalized interest rates
• How might sovereign bond yields in Asia Pacific react to US monetary normalisation under turbulent market conditions?

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