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Inflation Derivatives and Index-Linked Bonds

Day One

The Building Blocks

  • Measures of inflation
  • Inflation and deflation drivers
  • Market participants
  • The mechanics of index-linked bonds
  • Variations in index-linked bond structures and embedded optionality
  • Break-even inflation from bonds
  • The limitations of break-even inflation
  • Building an accurate inflation curve from bonds with B-Spines and regression

Workshop: Building an accurate inflation curve from bonds

Introduction to Inflation Derivatives

  • Zero Coupon, Revenue and Year on Year inflation swaps
  • Inflation swap mechanics and the market
  • Building an inflation curve from swaps
  • X11 seasonality adjustments for pricing derivatives
  • Relationship between the market for inflation linked bonds and inflation derivatives
  • Inflation Sensitivity IE01, DV01 convexity, and correlation

Workshop: Pricing and using zero coupon and revenue swaps with seasonality


Day Two

Inflation Derivatives in Use

  • Sensitivity measures applied to index-linked bonds
  • Asset swaps in general
  • Par and proceeds asset swaps with index-linked bonds
  • Residual swap risk
  • Inflation derivatives in public project financing (PFI structure)
  • Why zero coupon and year on year inflation are different
  • Forward inflation and convexity corrections

Workshop: Further uses of inflation swaps: risk and valuation of revenue swaps with seasonality

Inflation Options and Related Products

  • Inflation caps and floors
  • LPI embedded options and path dependency
  • Inflation volatility considerations
  • Applying standard interest rate option models to inflation?
  • Index-linked notes
  • Hybrid products with inflation protection
  • Inflation protection in retail products

Workshop: Embedded inflation options



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