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I'm preparing a report on the different Greeks used in risk measurement, and my boss mentioned the inflation delta within the first-order Greeks (and the Inflation Vega, but I guess that if I figure out the first, I will get the latter as well).

Does anybody know what is commonly referred to as "inflation delta" of a derivative?

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  • $\begingroup$ In Fixed Income (which is not my field) people worry about inflation risk, and so yes, a bond portfolio has an inflation delta. Roughly speaking the "three year inflation delta" is the change in present value of the portfolio for a 1 basis point increase in three year inflation. $\endgroup$ – Alex C Jun 13 '16 at 4:04
  • $\begingroup$ The three year inflation compensation can be estimated from 3 year ZC inflation swaps. $\endgroup$ – noob2 Jun 13 '16 at 11:56
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Typically one only thinks about inflation delta in the context of an inflation derivatives portfolio. Then it is the sensitivity to a 1bp change in the zero coupon inflation rate for each maturity.

As others have mentioned, regular bonds are sensitive to inflation. However we typically describe that risk as a risk to nominal interest rates, rather than explicitly a risk to inflation.

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Inflation delta is typically used in the field of fixed income and is defined as sensitivity of the the present value of cash flows to the changes in the inflation curve. In business it is used to measure the inflation risk in the portfolio relative to the liabilities.

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