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I'm a newbie to the world of swaps.
If I have a Total Return Inflation Swap (Receive CPI, Pay Fixed Zero Coupon)
Based on CPI Index starting level = 236 Notional = 100,000 Term = 5 Years
How can I calculate the final payoff at maturity using a hypothetical future CPI level e.g. 300 ? Are there any excel and/or R examples?
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 date) and $I(T)$ is the reference index as of the termination date.
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. Let's say it is 10%, which is 10,000.
Final payoff to swap long at maturity = 27,118 - 10,000 = 17,118. You said "you have" the swap, so I assume you are the fixed rate payer.
In Excel, you could do something like this: http://www.fincad.com/resources/resource-library/article/how-build-workbook-value-total-return-swap-floating-rate-loan
Modify for you specific swap.
