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3

In inflation world, the deal payoff is always based on a certain lag convention. That is, the value $I(T)$ always refers to a published index level several months ago or is interpolated based on those published index levels. For example, for a payoff on July 15, 2015, the indexed level referred is the published index level for May, 2015, based on the 2m ...

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For ZC inflation swaps, the fixed side cash flow is $$N \big((1 + r)^T - 1\big),$$ where $N$ is the national amount, $r$ is the agreed upon ZC swap rate, and $T$ is the tenor of the swap. The floating side cash flow is $$N\left( \frac{I(T)}{I_\text{base}} - 1 \right),$$ where $I_\text{base}$ is the base index level (reference index as of the effective ...

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The trick to swap calculations is understanding what your profit is. Profit is (what you receive - what you pay). You can use this to calculate swaps on interest rates, equity swaps, and so on. What will you receive? You are receiving: CPI appreciation x Notional. (300/236 - 1) * 100,000 = 27,118. What are you paying? You are paying the zero coupon rate. ...

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