Misplaced Pages

Zero-coupon inflation swap

Article snapshot taken from Wikipedia with creative commons attribution-sharealike license. Give it a read and then ask your questions in the chat. We can research this topic together.
(Redirected from Zero-Coupon Inflation-Indexed Swap)
This article does not cite any sources. Please help improve this article by adding citations to reliable sources. Unsourced material may be challenged and removed.
Find sources: "Zero-coupon inflation swap" – news · newspapers · books · scholar · JSTOR (December 2015) (Learn how and when to remove this message)
Part of a series on
Financial markets
Looking up at a computerized stocks-value board at the Philippine Stock Exchange
Bond market
Stock market
Other markets
Derivatives Foreign exchange
Over-the-counter (off-exchange)
Trading
Related areas

A zero-coupon inflation swap (ZCIS), also called a zero-coupon inflation-indexed swap (ZCIIS), is a standard derivative product whose payoff depends on the inflation rate realized over a given period of time. The underlying asset is a single consumer price index (CPI).

It is zero-coupon because there is only one cash flow at the maturity of the swap, without any intermediate coupon. It is called a swap because at maturity, one counterparty pays a fixed amount to the other in exchange for a floating amount (in this case linked to inflation). The final cash flow will therefore consist of the difference between the fixed amount and the value of the floating amount at expiry of the swap.

Detailed flows

  • At time T M {\displaystyle T_{M}} = M years
    • Party B pays Party A the fixed amount N [ ( 1 + K ) M − 1 ] {\displaystyle N}
    • Party A pays Party B the floating amount N [ I ( T M ) I ( T 0 ) − 1 ] {\displaystyle N{\Bigg }}

where:

  • K {\displaystyle K} is the contract fixed rate
  • N {\displaystyle N} the contract nominal value
  • M {\displaystyle M} the number of years
  • T 0 {\displaystyle T_{0}} is the start date
  • T M {\displaystyle T_{M}} is the maturity date (end of the swap)
  • I ( T 0 ) {\displaystyle {\mathcal {I}}(T_{0})} is the inflation consumer price index at start date (time T 0 {\displaystyle T_{0}} )
  • I ( T M ) {\displaystyle {\mathcal {I}}(T_{M})} is the inflation consumer price index at maturity date (time T M {\displaystyle T_{M}} )

See also

References

Derivatives market
Derivative (finance)
Options
Terms
Vanillas
Exotics
Strategies
Valuation
Swaps
Exotic derivatives
Other derivatives
Market issues
Categories: