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Pricing inflation-indexed derivatives

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  • Fabio Mercurio
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    Abstract

    In this article, we start by briefly reviewing the approach proposed by Jarrow and Yildirim for modelling inflation and nominal rates in a consistent way. Their methodology is applied to the pricing of general inflation-indexed swaps and options. We then introduce two different market model approaches to price inflation swaps, caps and floors. Analytical formulae are explicitly derived. Finally, an example of calibration to swap market data is considered.

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    File URL: http://www.tandfonline.com/doi/abs/10.1080/14697680500148851
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    Bibliographic Info

    Article provided by Taylor and Francis Journals in its journal Quantitative Finance.

    Volume (Year): 5 (2005)
    Issue (Month): 3 ()
    Pages: 289-302

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    Handle: RePEc:taf:quantf:v:5:y:2005:i:3:p:289-302

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    Web page: http://taylorandfrancis.metapress.com/link.asp?target=journal&id=111405

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    Related research

    Keywords: Inflation; Nominal rates; Inflation-indexed derivatives; Pricing inflation-indexed derivatives;

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    Cited by:
    1. Hinnerich, Mia, 2008. "Inflation-indexed swaps and swaptions," Journal of Banking & Finance, Elsevier, vol. 32(11), pages 2293-2306, November.

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