# Tag Info

5

This is not an arbitrage because the transaction costs of the basket of goods is too high. Ever try to sell an item on eBay? I doubt you'll get 2-3% more for it next year, even new in box. Some of the items in the basket are current consumption goods. Good luck selling those fresh fruits and vegetables next year for 2-3% more than you paid. Others are ...

3

This is an interesting question. I'll make a guess on what may be the driving factors for "ratings inflation" based on these assumptions: Rating agencies compete among themselves to conduct bond rating business with issuers, since they are paid for their services by the issuer. Bond issuers choose the agency that promises the highest rating, since the ...

3

One approach is to include the nominal rates, real rates and inflation in the model and then represent the inflation as a kind of exchange rate between nominal and real rates. Jarrow and Yildrim presented such an approach in their paper "Pricing Treasury Inflation Protected Securities and Related Derivatives using an HJM Model" (2002). The definitive ...

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What I'm writing is based on the methodology in http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1565134 You observe the nominal and real bond prices/YTMs. Transform them to zero or forward curves. Estimate the multivariate dynamics and project them to your horizon, let's call this $X$. Use the distribution of zero/forward rates to obtain the distribution ...

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The problem is more that the article you read uses language that is not consistent with the way most people in finance talk. People typically call the difference between the nominal Treasury yield and an inflation-linked bond the breakeven inflation rate. When people look at the difference between the earnings yield and the nominal interest rate, they might ...

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Ironically I would say that in any market in which inflation does not matter but fat investment banks roam and harvest. Japan for example, who cares about inflation in this country...(until recently, thank you PM Abe). Thus, in markets such as Japan you hardly see a single TIPS like security crossing the counter, while your snake oil salesmen lurk around to ...

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Let real wealth at time $t$ be defined as $W_{t}^{R}\equiv\frac{W_{t}^{N}}{P_{t}}$ where $W_{t}^{N}$ is nominal wealth and $P_{t}$ is the price level indexed to one at the initial period. You want to withdraw a $x_{t}$ percent of real wealth. This would give $$x_{t}W_{t}^{R}=x_{t}\frac{W_{t}^{N}}{P_{t}}$$.You could then consider a withdrawal rate in nominal ...

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