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Faster solutions for Black zero lower bound term structure models

Author

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  • Leo Krippner

Abstract

The Black framework offers a theoretically appealing way to model the term structure and gauge the stance of monetary policy when the zero lower bound of interest rates becomes constraining, but it is time consuming to apply using standard numerical methods. I outline a faster Monte Carlo simulation method for Black implementions, illustrate its performance for a one factor model, and then discuss the ready extension to models with multiple factors.

Suggested Citation

  • Leo Krippner, 2013. "Faster solutions for Black zero lower bound term structure models," CAMA Working Papers 2013-66, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  • Handle: RePEc:een:camaaa:2013-66
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2013-09/66_krippner.pdf
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    References listed on IDEAS

    as
    1. Black, Fischer, 1995. " Interest Rates as Options," Journal of Finance, American Finance Association, vol. 50(5), pages 1371-1376, December.
    2. Michael D. Bauer & Glenn D. Rudebusch, 2016. "Monetary Policy Expectations at the Zero Lower Bound," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 48(7), pages 1439-1465, October.
    3. repec:fip:fedlps:y:2012:i:nov8 is not listed on IDEAS
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    Cited by:

    1. Leo Krippner, 2014. "Measuring the stance of monetary policy in conventional and unconventional environments," CAMA Working Papers 2014-06, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    2. Leo Krippner, 2013. "Efficient Jacobian evaluations for estimating zero lower bound term structure models," CAMA Working Papers 2013-77, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.

    More about this item

    Keywords

    Black framework; zero lower bound; shadow short rate; term structure model;

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing

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