We propose a modification of the classical Black–Derman–Toy (BDT) interest rate tree model, which includes possibility jump with small probability at each step to practically zero rate. The corresponding BDT algorithms are consequently modified calibrate containing scenarios. This is motivated by recent 2007–2008 crisis in United States, and it quantifies risk future crises bond prices derivati...

We study a novel policy tool—interest rate uncertainty—that can be used to discourage inefficient capital inflows and adjust the composition of external accounts between short-term securities foreign direct investment (FDI). identify trade-offs faced in navigating balance price stability. The interest uncertainty discourages mainly through portfolio risk precautionary saving channels. A markup ...