Jump to content

Year-on-year inflation-indexed swap

From Wikipedia, the free encyclopedia

This is an old revision of this page, as edited by Wiggi-1 (talk | contribs) at 12:30, 12 June 2015. The present address (URL) is a permanent link to this revision, which may differ significantly from the current revision.

The Year-on-Year Inflation-Indexed Swap (YYIIS) ia a standard derivative product over Inflation rate. The underlying asset is a single Consumer price index (CPI).

It is called Swap because each year there is a swap of a fixed amount against a floating amount. But in reality only a one way payment is made (fixed amount - floating amount).

Detailed flows

  • Each year, at time
    • Party B pays Party A the fixed amount
    • Party A pays Party B the floating amount

where:

  • K is the contract fixed rate
  • N the contract nominal value
  • M the number of years corresponding to the deal maturity
  • i the number of years (0 < i <= M)
  • is the fixed-leg year fractions for the interval [Ti−1, Ti]
  • is the floating-leg year fractions for the interval [Ti−1, Ti]
  • is the start date
  • is the time of the flow i
  • is the maturity date (end of the swap)
  • is the inflation at start date (time )
  • is the inflation at time of the flow i (time )
  • is the inflation at maturity date (time )

See also