eThesis - School of Business electronic theses

Objectives of the Study:

The thesis discusses term structure modeling under near zero and negative short term interest rates. The objective of the thesis is to find an understanding if there is an appropriate term structure model for near zero and negative interest rates. The thesis discusses mainly three angles to term structure modeling. Firstly, the construction of the term structure models. Secondly, properties of the negative and near zero interest rates and finally monetary policy at near zero interest rates. From these angles we conclude our knowledge on the issue.

Methodology:

Academic literature is studied to achieve knowledge over term structure models, behavior of negative and near zero interest rates and monetary policy. Data analysis of German government bond yield data is used to study the properties of the near zero and negative interest rates. The data for this analysis is collected from the Deutsche Bundesbank.

Conclusions:

No consensus over an appropriate term structure model for near zero and negative interest rates can be found. Rather all term structures models seem to encounter some problems with the negative interest rate data. We still find properties that make the models more suitable for such data and these properties have been discussed comprehensively in the thesis.