Inflation-linked products

Bonds, swaps and options

Course objectives

  • Understand the principles and uses of inflation-linked products
  • Control the pricing of inflation derivatives
  • Know how to cover the risks of an indexed swap

Key concepts

  • Fisher Parity, invest in real rates
  • Breakeven inflation and components
  • Risk premium and motivation of issuers

Index-linked bonds

  • Market participants
  • Drivers
  • Mechanics
  • Calculation of forward inflationd-linked indices from bonds

Excel Case Study: Construction of a break-even curve

Inflation swaps

  • Mechanics, drivers, market participants
  • Zero-Coupon Swaps, Revenues swaps, Liability swap

Case Study: Project finance, Pension funds

  • Seasonality adjustement
  • Year-on-year swaps and convexity approach

Excel Case Study: Pricing of an Asset Swap using a break-even curve

Inflation asset swaps: the link between real and nominal worlds

Inflation options

  • Caps / Floors, Swaptions
  • UK Limited Price Inflation Index Options
  • 0% OATi and OATei Floor
  • Hybrids
  • Hedging issue

Case Study: Quantitative Easing and real yields

Patrice Robin

Patrice Robin

Patrice is an independent consultant on derivatives. Previously, Patrice spent 10 years in trading on interest rate derivatives, then structured products, swaps and vanilla options and became head of interest rate and inflation options in Santander Global Markets in London.

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