0 the interest percent that a bank or other financial company charges you when you borrow money, or the interest percent it pays you when you keep money in an account -- 利率
In that case, one can price the option knowing the volatility of the interest rate and the density of time to death.
Obviously the second-order interest rate is variable over long time horizons.
Policy interest rate determination is a group decision !
There is also a risk-free asset with a fixed interest rate.
In other words, we assume that international lenders offer a lower interest rate.
We find that interest rate changes are not predictable, but inflation and the output gap are.
Clearly, a portfolio-indifference equilibrium with zero nominal interest rate will be implemented only for a specific rate of money growth.
A similar term appears when one takes into account the fact that the nominal interest rate faces a lower bound at zero.
