Affine model of inflation-indexed derivatives and inflation risk premium

Hsiao Wei Ho, Henry H. Huang, Yildiray Yildirim

Research output: Contribution to journalArticlepeer-review

3 Scopus citations

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. Crown

Original languageEnglish
Pages (from-to)159-169
Number of pages11
JournalEuropean Journal of Operational Research
Volume235
Issue number1
DOIs
StatePublished - 16 May 2014

Keywords

  • Affine models
  • Inflation risk premium
  • Inflation-indexed derivatives

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