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Negative Rates Are Rewriting the Rules of Modern Finance

Bloomberg business news
Bill Dudley, former New York Fed President, discusses negative interest rates.Source: Bloomberg)

Negative interest rates have quite literally broken one of the pillars of modern finance.

As economists and central bankers weigh the pros and cons of sub-zero rates and their impact on the world, traders have been contending with a rather more mundane, but fundamental issue: How to price risk on trillions of dollars of financial instruments like interest-rate swaps when their complex mathematical models simply don’t work with negative numbers.