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Quantitative Finance · Begrippenlijst

Wat is Effective lower bound?

Definition 5.4 Rates, Credit, XVA and Risk · Hoofdstuk 5 — SABR in Rates and the Volatility Cube

The effective lower bound of a policy rate is the level below which a central bank is not expected to cut, because further cuts would push cash out of the banking system or hurt banks more than they ease conditions. Rates models use it to bound the rate distribution, and a shifted model’s shift must exceed it in magnitude.

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