Interest rates as options: assessing the markets' view of the liquidity trap
Division of Research & Statistics and Monetary Affairs, Federal Reserve Board, 2003 - Business & Economics - 40 pages
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2002 and early afﬁne Ana Aizcorbe analysis artiﬁcial economy Banking Industry Berger Bomﬁm bound at zero Brian Sack central tendency close to zero computed liquidity-trap probabilities December Economics Discussion Series economy will slip equilibrium short rate estimated model evolves according expected extreme-volatility scenario February federal funds rate Federal Reserve Board Figure Finance and Economics ﬁrst ﬁve hit zero horizons implied Inﬂation Interest Rate Swaps January Jeremy Rudd Karl July LIBOR liquidity trap lower bound Mark Carlson market price market-implied probabilities Maturity mean reversion model-generated model-implied Monetary Policy Rules nominal short rate objective probability option-like feature paper partial differential equation price of risk Rates as Options risk parameters risk-neutral probabilities Rudd Karl Whelan Section September 2002 short rate process short-term nominal rates short-term rates signiﬁcant stylized model swap curve swap rates term premium term structure model two-factor model volatility yield curve zero bound constraint zero-coupon bond zero-coupon yields