Are Prolonged Negative Interest Rates Having a ‘Negative’ Impact on Your Derivative Pricing & Modeling?

Derivative practitioners need to be thinking about the pricing and modeling challenges related to prolonged, and in some areas, increasingly negative rate environments around the globe. The recent March 22 announcement by the Bank of Hungary—along with the January 29th announcement by the Bank of Japan—to adopt negative interest rates took much of the world by surprise. Of particular interest to derivative market participants, the info graphic below highlights the negative market rates in Europe and Japan for 2-year bond yields, as of March 21, 2016.

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