Affine model of inflation-indexed derivatives and inflation risk premium

Hsiao-Wei Ho, Henry Huang () and Yildiray Yildirim

European Journal of Operational Research, 2014, vol. 235, issue 1, 159-169

Abstract: This paper proposes an affine-based approach which jointly captures the nominal interest rate, the real interest rate, and the inflation risk premium to price inflation-indexed derivatives, including zero-coupon inflation-indexed swaps, year-on-year inflation-indexed swaps, inflation-indexed swaptions, and inflation-indexed caps and floors. We provide an example and explain how to use traded zero-coupon inflation-indexed swap rates to estimate inflation risk premiums.

Keywords: Inflation-indexed derivatives; Inflation risk premium; Affine models (search for similar items in EconPapers)
Date: 2014
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:235:y:2014:i:1:p:159-169

DOI: 10.1016/j.ejor.2013.12.010

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