Due to the interesting financial moment we are living, my motivations to write this Master thesis has mostly been the behavior of interest rates and models that can be used predict them. Thus, in this dissertation I have presented theHull-White model and the way to calibrate it against market data so it can be used to price interest rate derivatives. The reader can find both theoretical and practical presentations and examples along with the code to program them byhim/herself.

Today's monetary policy is a historic one, where the introduction of negative interest rates has started a new "age" of unconventional monetary policy and some argue that there is a need for further unconventional monetary tools. The purpose of this thesis is to analyze negative interest rates, how they came to be, what long-term eect they have on economic stability and if its possible to get out. We do this by analyzing existing theoretical and empirical research, including a theoretical model based on household consumption, a cost of money function and an illustration of the liquidity trap. Thereby the thesis concludes that the short term positive eects of negative interest rate policy get exhausted in the long-term as the negative eects increase over time, thus creating an environment of excessive borrowing both by consumers and governments that might lead to instability and economic downturn in the long-term. Furthermore, the negative interest rate policy is creating a diculty of getting out of the negative interest rate environment because the consumers and the rms have gotten used to the "cheap money" and might have hard time nancing day to day operations in normal interest rate world.

The aim of this thesis is to examine whether repo rates have any impact on private consumption in Sweden. After the financial crisis in 2008, the repo rates in some periods become negative. Whether negative repo rates have impact on private consumption is an additional analysis in the thesis. In the theoretical framework the IS-LM model and some explicit hypothesis are derived. In the empirical part, data for repo rate, income, inflation and saving in Sweden are collected from 1995 to 2019 with a time unit of quarterly data. With the collected data one multiple linear regression is estimated and one additional test where the same model is modified with a dummy variable that isolates the periods with negative repo rates. In line with the theoretical prediction, the first multiple linear regression result exhibits that the repo rate has statistically significant negative impact on private consumption. The second multiple linear regression with the dummy variable shows that the impact of negative repo rates is not different from positive repo rate. Limitations and shortcomings are discussed in the section limitations and weaknesses.

The goal of this master thesis is to analyze main changes affecting interest rate swaps in the Czech republic, which took place since 2007, in areas of regulation, valuation of interest rate swaps and negative interest rates. The first part defines derivative and describes sort of derivatives and type of swaps. The second part deals with interest rate swaps, pricing and valuation, and contractual documentation. The third part explains the impact of regulation MiFID I, EMIR and MiFID II on interest rate swaps. The fourth part analyzes changes in interest rate swaps valuation and negative interest rates issues.

Background: Denmark, along with other European countries, has decided to cut its policy interest rate into negative territory to meet macroeconomic objectives. This has historically been thought of as impossible and impacts commercial banks significantly. As a consequence, concerns have been raised about commercial bank profitability, which is a primary indicator of the banking industry’s soundness. Purpose: The purpose of this thesis is to investigate the relationship between persistently negative interest rates and commercial bank profitability in Denmark, covering an extended timeframe (2011 – 2018, 165 bank years, 21 commercial banks). Method: Bank profitability is measured using the Return on Average Assets (ROAA) and the Net Interest Margin (NIM). The thesis follows a simple form of mixed-methods approach –quantitatively focused, followed by a supplementary qualitative study. For the quantitative part, data is collected through the Orbis database, which provides global company data. We utilized a Fixed Effects Model with strongly balanced panel data, covering 59% of the Danish banking industry’s assets. Semi-structured interviews were then conducted with professionals working in the industry to interpret the quantitative findings. Conclusion: The findings of this study show that in the time period observed: Interest rates are not correlated with the NIM; The duration of consecutive negative interest rates (in years) is negatively correlated with the NIM; Interest rates are not correlated with the ROAA; The duration of consecutive negative interest rates (in years) is not correlated with the ROAA; The duration of consecutive negative interest rates seems to be more significant since it takes time for the profitability-reducing effect of negative interest rates to materialize. The ROAA is not impacted by the (years in negative) interest rates, as it is mainly determined by factors under management control.

Uppsatsen besvarar frågeställningen "hur påverkas svenska hushåll av negativ ränta?" i fyra olika teman: sparande, bostadsmarknad & skuldsättning, inkomst och konsumtion. Frågeställningen besvarades tematiskt med hjälp av intervjuer, statistik och olika teoretiska byggstenar. Sparkonton förblev hushållens vanligaste sparform trots införandet av negativ reporänta. Dock ser vi en förskjutning mot högre riskbenägenhet hos en del hushåll, den kan riskera att bli "den nya normala" om negativa räntor blir bestående. Negativa bankinsättningsräntor kommer sannolikt inte orsaka massiva uttag, eftersom kostnad för kontanthantering är betydligt högre i takt med att Sverige rör sig mot ett kontantlöst samhälle, samt att sparkonton har en fördel att den tillhandahåller likviditet. Bostadsmarknadspriser påverkas främst av demografiska aspekter som urbanisering och bostadsbrist, samtidigt som skuldsättning ökat. Hushållen erfar först en sänkt bostadslåneränta ifall de har ett bostadslån, men korrelationen mellan reporäntesänkningar och bolånesänkningar har minskat. Teoretiskt bör hushållens inkomst påverkas positivt av negativ ränta, men lönebilden verkar påverkas av fler faktorer, bland annat yrkesefterfrågan och ekonomiska cykler. En viss förskjutning mellan inflation och löneutvecklingen finns, då lön stiger först efter att inflationsökningar redan skett. Hushållen har upplevt räntesänkningar som direkt gett effekten att konsumtion sjunkit, men inte ökat nämndevärt till följd av högre disponibel inkomst genom negativ ränta. Negativ ränta påverkar hushåll, men inte till stor skillnad från väldigt låg ränta, varav räntans passage ner i negativt territorium skapar rädsla, men få hushåll har agerat aktivt inom alla berörda områden som följd. Riksbankens förtroende gällande räntans effektivitet för att pådriva inflation ses även som överdriven. / Through the work of this Bachelor Thesis we examine "How Swedish households are affected by negative interest?" in four different themes: savings, housing & debt, income and consumption. The question was answered thematically through interviews, statistics and various theoretical building blocks. Despite the introduction of negative repo rate, saving deposits remained the most common form of savings of households. However, we see a shift toward higher risk appetite among some households, and there is a risk that it becomes "the new normal" if negative interest rates become permanent. Negative bank deposit rates will most likely not cause massive withdrawals, because the cost of handling cash is considerably higher in line with Sweden is moving toward a cashless society, and also because saving accounts provide liquidity. Housing market prices are mostly affected by demographic aspects such as urbanization and housing shortage, which increases indebtedness. Mortgages and loans receive a lower interest rate, but the correlation between repo interest rates and mortgage interest rates are becoming weaker. Theoretically household income should be positively affected by negative interest, but wages are dependent of several factors, such as specific profession demand and economic cycles, and a certain offset between inflation and wage growth exists, as wages first rise after inflation growth occurred. Lower interest rates directly cause consumption to decline, as the costs fall, but higher disposable income hasn’t caused consumption to rise notably as of yet. Negative interest rates have effects on the households, but do not give a vast difference from low interest rates. It has caused worries, but few households have reacted actively in all areas concerning households. The Riksbank’s trust in the interest rates efficiency to raise inflation is also seen as exaggerate

Previous research suggests that a policy interest rate cut below the reversal interest rate reverses the intended effect of monetary policy and becomes contractionary for lending. This paper is an empirical investigation into whether the reversal interest rate was breached in the Swedish negative interest rate environment between February 2015 and July 2016. We find that banks with a greater reliance on deposit funding were adversely affected by the negative interest rate environment, relative to other banks. This is because deposit rates are constrained by a zero lower bound, since banks are reluctant to introduce negative deposit rates for fear of deposit withdrawals. We show with a difference-in-differences approach that the most affected banks reduced loans to households and raised 5 year mortgage lending rates, as compared to the less affected banks, in the negative interest rate environment. These banks also experienced a drop in profitability, suggesting that the zero lower bound on deposits caused the lending spread of banks to be squeezed. However, we do not find evidence that the reversal rate has been breached. / Tidigare forskning menar att en sänkning av styrräntan under brytpunktsräntan gör att penningpolitiken får motsatt effekt och blir åtstramande för utlåning. Denna rapport är en empirisk studie av huruvida brytpunktsräntan passerades i det negativa ränteläget mellan februari 2015 och juli 2016 i Sverige. Våra resultat pekar på att banker vars finansiering till större del bestod av inlåning påverkades negativt av den negativa styrräntan, relativt till andra banker. Detta beror på att inlåningsräntor är begränsade av en lägre nedre gräns på noll procent. Banker är ovilliga att introducera negativa inlåningsräntor för att undvika att kunder tar ut sina insättningar och håller kontanter istället. Vi visar med en "difference-in-differences"-analys att de mest påverkade bankerna minskade lån till hushåll och höjde bolåneräntor med 5-åriga löptider, relativt till mindre påverkade banker, som konsekvens av den negativa styrräntan. Dessa banker upplevde även en minskning av lönsamhet, vilket indikerar att noll som en nedre gräns på inlåningsräntor bidrog till att bankernas räntemarginaler minskade. Vi hittar dock inga bevis på att brytpunktsräntan har passerats.

The thesis focuses on estimating the effect of expansionary monetary policy concerning asset prices, specifically house and stock prices as they are of pri- mary importance in financial markets. A structural vector autoregressive model is used including data for the Euro Area, the United Kingdom, and the United States from 2007 to 2017. Moreover, instead of short-term nominal interest rate, the shadow policy rate is used to measure the stance of both conventional and unconventional monetary policy. It is useful when policy rates of central banks are at or near zero as it neglects the zero-lower bound. Using both impulse response functions and forecast error variance decomposition, results suggest that higher interest rates are indeed associated with lower asset prices. That is confirmed by including two different estimates of shadow rates into the model and observing the effect for two specific types of assets. More precisely, house prices react almost immediately showing the most substantial decrease for the United Kingdom, while stock prices slightly increase at first and de- crease afterward with similar size of the effect for all areas under consideration. Finally, the discussion of how the monetary authority should react to asset price fluctuations is provided, summarizing the vast amount of literature...

美日歐等先進國家在傳統貨幣政策提振經濟的效果逐漸失靈後，開始大膽啓用量化寛鬆(Quantitative Easing, QE)等非傳統貨幣政策(unconventional monetary policy)。本研究以此為背景，透過大量數據蒐集、整理與分析，比較國際金融市場在量化寛鬆貨幣政策前後的變化。 2007年美國次貸風暴引發全球金融危機後，FED於2008年開始實施密集、快速的QE政策，全面利用央行資產負債表與獨特而絕對在貨幣價格及數量的無限權力。本研究試圖從債券市場、股票市場、外匯市場、信貸與投資市場、各部門負債與去槓桿化程度與全球通貨膨脹現況等不同面向切入，嘗試以較長時間的統計資料比較並說明QE的有效性與侷限性。 在美日歐相繼實行規模程度不一的QE政策後，研究發現美國市場的各個層面已有顯著的改進，特別是在就業市場部分，其中失業率已逼近自然失業率的充分就業狀況，代表美國將逼近升息的時間點，並且不是只有單次調高基準利率(Fed Fund Rate，FFR)，而是一個升息循環的開始，預期FFR將在未來數年內逐漸調高到正常經濟的水平。 與此同時，開發中國家則在資金外流回到美元體系的大環境下，呈現匯率貶值、股市表現不佳與主權債利差變大的金融現象，反應出國際金融市場風險正移轉至新興市場；尤其令人不安的是新興市場持續累積相對龐大的負債，以及國際商品大跌，嚴重衝擊以出口這些商品為主的新興經濟體與生產製造商。在各國央行貨幣政策趨於分岐，特別是美國啟動升息周期將成為美元持續走強的驅動力，龐大國際資金的流動亦會顯著帶來市場風險的移轉。 本研究蒐集各種不同領域的報告及資料，進行分析，主要結果整理如下： 一、量化寬鬆政策(Quantitative Easing)將在一開始造成實施國的貨幣明顯貶值。 二、量化寬鬆政策將造成實施國的股票市場持續走揚。 三、量化寬鬆政策將造成實施國的主權債券殖利率明顯下跌，特別是短天期的部分(short-end)。若實施國進一步採行負利率政策，短天期主權債券收益率亦會由正轉負。 四、量化寬鬆政策帶動全球通貨膨脹脫離偏低水準的效果不明顯，無論已開發或開發中國家都仍深陷通貨緊縮的壓力。 五、在美日歐相繼實施量化寬鬆政策後，全球各商品(市場)的波動趨於一致，呈現越來越高的關聯性。 六、全球金融市場流動性有逐漸降低的趨勢(受到各國管理金融業法規趨嚴影響)，對照市場波動性時大時小，流動性風險影響國際資金的資產配置與流動成為一個重要議題。

This thesis studies interest rates (even negative), interest rate derivatives and term structure of interest rates. We review the different types of interest rates and go through the evaluation of a derivative using risk-neutral and forward-neutral methods. Moreover, the construction of interest rate models (term-structure models), pricing of bonds and interest rate derivatives, using both equilibrium and no-arbitrage approaches are discussed, compared and contrasted. Further, we look at the HJM framework and the LMM model to evaluate and simulate forward curves and find the forward rates as the discount factors. Finally, the new framework (after financial crisis in 2008), under the collateral agreement (CSA) has been taken into consideration.