Questions tagged [inflation]

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Derive the convexity adjustment for inflation YoY swap with unconventional payoff

I'm trying to solve for the convexity adjustment for an inflation YoY swap with unconventional payoff, where $I_i$ is CPI at time i: $Notional * ([I_i/I_{i-1}]^{Day Count Fraction} - 1)$ In the normal ...
bphone's user avatar
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Where can I find UK Gilt derived break even inflation rates? [duplicate]

The St Louis Fed publish data like this, https://fred.stlouisfed.org/series/T10YIE where the break even inflation rate is derived from treasuries and TIPS. Is there equivalent data derived from UK ...
iwans's user avatar
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3 votes
1 answer
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Nominal vs. real (inflation-adjusted) prices/returns in cross-sectional asset pricing

I have the impression that asset pricing models such as the CAPM or Fama & French 3 factor model typically concern nominal rather than real (inflation-adjusted) prices/returns. If this is indeed ...
Richard Hardy's user avatar
3 votes
0 answers
228 views

Seasonality adjustment within Quantlib Zero Coupon Inflation Swap

I am currently working on pricing a Zero Coupon Inflation Swap using Quantlib in Python. During my analysis, I have observed that when the start date and end date of the swap coincide exactly with X ...
Oamriotn's user avatar
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YYIIS Inflation swap chapter 16 of Brigo's text

Are there errata in the Brigos's text of Interest Rate Models in chapter 16 when it is defined the YYIIS payoff? In formula (16.3) is defined Party A's payoff as: \begin{align} \\ N\psi_i\left[\frac{I\...
Alexis Sánchez Tello's user avatar
2 votes
1 answer
115 views

Daily quotes TIPS (treasury inflation protected securities) data

I am looking for historical quotes for US TIPS (treasury inflation protection security). What is a reliable source of data to get this information? Here's what I have tried: I have looked into this ...
phdstudent's user avatar
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2 answers
100 views

Risk mapping for Brazilian IPCA bonds [closed]

On Jorion's 'Value at Risk' chapter about risk mapping, interest rate swaps are decomposed in a portfolio of forward contracts so they can be mapped into risk factors. I'm trying to implement this for ...
SuavestArt's user avatar
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Inflation in wealth forecast [closed]

I am building a model to simulate people's wealth in the next years. Say Mr X has a portfolio with an expected return of 3% (annual). From this I can simulate the return of his portfolio in the next ...
savoga's user avatar
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116 views

Expectations on real interest rates in China

How do market practitioners approach expectations of real interest rates in China? For the US we would look at inflation-linked bonds and surveys, but what about China?
SuavestArt's user avatar
1 vote
0 answers
53 views

Data on historical, cross-country REAL yield curves (i.e. inflation-linked bonds)

I asked here about data on a data source for historical yield curves for many countries. Many central banks (linked there, in Helin's answer) publish estimates for their nominal yield curves. But most ...
bhalperin's user avatar
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Quantlib : Valuation of inflation swaps of EUR-RPI using quantlib python?

Below is the sample code to compute the inflation swaps. I have referred the Quantlib cookbook to get the flavor of Inflation swaps. But I feel that the term structure and final NPV is not accurate ...
robin's user avatar
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Up-to-date breakeven inflation term structure for US and Eurozone

I am looking for openly accessible, up-to-date data for the term structure of the breakeven inflation rates in the US and the eurozone. All I can find are static charts that illustrate past news ...
David Müller's user avatar
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2 answers
144 views

How does FED quantify inflation expectation?

As I understand the FED considers the employment and inflation expectation when defining the monetary policy. I wonder what is the quantitative indicator or traded instrument FED uses to derive this ...
Lopo's user avatar
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1 answer
162 views

Long Breakeven inflation

I want to go long bei by going long individual 10 year tips and short individual 10 year treasuries. How do I calculate and match the duration?
JamieC113's user avatar
2 votes
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65 views

Should I train (and apply) a commodity forecasting model using nominal or real historical (futures) prices?

I am forecasting hourly power prices by applying Gradient Boosting to, among other variables, average monthly gas prices. The algorithm is currently trained on historical nominal monthly average gas ...
CasusBelli's user avatar
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1 answer
164 views

Inflation β = 1 meaning a “perfect inflation hedge?”

I read somewhere (Ang, Brière, Signori: Inflation and Individual Equities, 2012) that in a given period if the inflation rate rises by 1% point (say from 1% to 2%), and the return of Asset A rises ...
user3138766's user avatar
3 votes
1 answer
4k views

Difference between 5Y breakeven inflation and 5Y5Y inflation forward?

I cannot figure out the difference between the two data series found here: https://fred.stlouisfed.org/series/T5YIE/ https://fred.stlouisfed.org/series/T5YIFR/ The 5Y breakeven inflation, to my ...
user3138766's user avatar
-1 votes
1 answer
171 views

Why does the rate of inflation vary over time?

Interest rates have varied significantly over the last 50+ years (source: https://www.macrotrends.net/2016/10-year-treasury-bond-rate-yield-chart ). Is it possible to comprehensively and succinctly ...
OCPatch's user avatar
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1 answer
171 views

Breakeven Inflation Rate vs Actual Inflation Rate Study

I am relatively new to the realm of TIPS and inflation rate and am working on a study. I wish to investigate the correlation between the breakeven inflation rate for (5Y, 10Y, 20Y) TIPS and actual ...
somnaik09's user avatar
0 votes
1 answer
89 views

Relation between inflation rate and the exchange rate of the currency

I have been studying the relation between exchange rates and the inflation of the currencies, but I am far from understanding the most relevant factor in driving FX market players from pricing ...
Eduardo J. Sanchez's user avatar
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114 views

Is the price of the following inflation derivative observed/traded?

Let $M_{t\to t+2}^{\\\$}$ be the pricing kernel (SDF) from period $t$ to $t+2$. Let inflation over period $t$ to $t+1$ be denoted by $\Pi_{t \to t+1}$. Is it possible to observe the following quantity ...
Dejan Evisal's user avatar
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0 answers
37 views

ARMAX model with rolling window for predicting inflation

First of all, similar questions like mine are answered on this forum but I never quite saw an answer to this specific question. I'm trying to predict inflation by using an AR model with exogenous ...
JMK's user avatar
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1 answer
282 views

Why does holding a linker give you positive carry when inflation indices move up?

My book says: "By construction, the cash flows of inflation linked bonds are indexed, using daily indexation factors that are applied to the real price of a bond to arrive to the dirty price of ...
Reggle's user avatar
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1 vote
1 answer
99 views

House price inflation modelling

I have a data set of house prices and their corresponding features (rooms, meter squared, etc). An additional feature is the sold date of the house. The aim is to create a model that can estimate the ...
Melly Donald's user avatar
3 votes
2 answers
1k views

What drives the difference between M1 & M2 money supply (in the US)?

From what I understand the only entity that controls M1 in US is the Federal Reserve. Is it true that M2-M1( M2 minus M1; the part of M2 that is NOT in M1 like timed deposits) is controlled by the ...
Mike Cocos's user avatar
0 votes
1 answer
432 views

IRR with Inflation Rate

I have cash inflows and cash outflows for a 7 year period and my MIRR and inflation rate. That's all the information I have. How do I calculation the IRR taking the inflation rate into account in ...
user4434's user avatar
0 votes
1 answer
107 views

Do all inflation swaps reference the non-seasonally-adjusted index values?

Inflation CPI values (typically published monthly except Australia) are typically published in both SA (sseaonally adjusted) and NSA (non-seasonally adjusted) variants. Inflation swaps reference the ...
william smith's user avatar
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0 answers
50 views

What are the differences between the two equations relating inflation, real interest rates and nominal interest rates?

My lecturer showed two equations to describe the relationship between inflation, nominal and real interest rates, denoted as $I, RN, RR$, respectively. Then we have the following equations $$ 1+ RR_{1-...
Mohammed's user avatar
1 vote
0 answers
91 views

Inflation Option Modelling Approaches

I am trying to come up with a simplistic inflation option model to get a sense of the materiality of some inflation-indexed contracts containing inflation guarantees. I have a stochastic nominal IR ...
user153009's user avatar
2 votes
1 answer
966 views

Which is the "correct" 5Y5Y Inflation Expectation on Bloomberg, and what are the differences?

When the market talks about 5Y5Y expectation, is it referring to FWISUS55 Index, or G0169 5Y5Y BLC2 Curncy on Bloomberg? I ...
nwly's user avatar
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1 answer
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Where to Get the Yield of One Year Constant Duration TIPS ( inflation protected bonds)

Do you know where can I get the Yield of One Year Constant Duration TIPS ( inflation protected bonds). I found the yield of 5 year, but never could get the data for one year. Many thanks!
Lopo's user avatar
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1 vote
1 answer
33 views

How to normalise companies relative to each other? Remove the effect of macro-economy?

I want to focus on companies-performance only and as much as possible remove the effect of macro-economy. Interest rate changes, crisis, inflation etc. There are 2 goals: Simplification of analysis ...
Alex Craft's user avatar
0 votes
1 answer
402 views

What is the most convincing method/formula for carry and rolldown (in nominal terms) of inflation protected bonds

It is interesting that there is no thorough discussion and clear derivation on this per my search. I know TIPS are complex (compared to nominal bonds). The naive use of simple spot/forward yield ...
sciencemonk's user avatar
2 votes
2 answers
257 views

Calculating Implied Volatility from a put option

I am trying to find the Black-Scholes implied vol from a put option. I know how to do this in the case of a regular put option on an underlier $S(t)$ where $$ p(t, K) = e^{-r(T-t)}\mathbb{E}_Q\Big[ (K ...
R. Rayl's user avatar
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0 votes
1 answer
32 views

Looking for datasets with daily inflation rate for as many countries as possible

Here's an example of the kind of thing I'm looking for https://fred.stlouisfed.org/series/T10YIE I'm also happy to perform transformation on other data to get an estimated/approximated daily value if ...
Sahelanthropus's user avatar
1 vote
1 answer
194 views

How to evaluate embedded floor option in inflation linked bonds if interbank inflation floor instruments cannot be used or do not exist

Suppose we consider simple case that only par is protected against base price index, so it is with zero coupon floor feature. How do we value this option given that there is no inflation floor ...
sciencemonk's user avatar
3 votes
1 answer
3k views

Inflation swaps rate vs. Break-even rate

Can someone explain me the difference between zero coupon inflation swap rate and breakeven rate? For example, currently, US 10y zero coupon inflation swap rate is about 1.4%, while US breakeven 10y ...
tennisboy's user avatar
  • 321
1 vote
1 answer
59 views

How could we use 5 year Tips minus 2 Year Tips to get insight of Inflation Expection?

I read a article where the author used the difference the between yields of 5 year Tips and 2 year Tips as a proxy of the inflation expectation. Could anyone explain me what is the logic behind this ...
Lopo's user avatar
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1 vote
1 answer
100 views

How to deflate USD inflation?

On the picture below prices of SP500 and Gold (rescaled) for last 90 years. There are at least 3 types of distortions caused by inflation: Slow upward trend. Sudden jumps caused by radical changes ...
Alex Craft's user avatar
2 votes
1 answer
169 views

Inflation Indexed Caplet/Floorlet

Can someone explain what is it with $\psi_{i}$ (year fraction in $[T_{i-1},T_{i}]$). The formula in Mercurio (2006) as is follows: $N\psi_{i}P_{n}(t,T_{i})\mathbb{E}_{n}^{T_{i}}\left[\left(\omega\...
TryingtobeQuant's user avatar
1 vote
2 answers
750 views

Hull-White Calibration /Hypothetical Cap Pricing

I have a question regarding calibrating Hull-White (Extended Vasicek) Model to bond data. As you know, and stated in Mercurio (2005), zero coupon bond price in the Hull and White (1994); $P(t,T)=A(t,...
TryingtobeQuant's user avatar
3 votes
0 answers
183 views

Looking for a Paper: RBS Guide to Inflation-Linked Products

I wonder if any of you have an access to "The Royal Bank of Scotland (2003) Guide to Inflation-Linked Products. Risk." paper. It was in the bibliography of Mercurio's "Pricing Inflation Indexed ...
TryingtobeQuant's user avatar
1 vote
2 answers
855 views

Why Consumer Price Index is linear, when it should be exponential? And what to use instead?

Consumer Price Index looks like a very nice straight line, perfectly approximated with linear function (considering it only after the 1972). $$cpi(years) = start + ...
Alex Craft's user avatar
1 vote
0 answers
74 views

Inflation TIPS - What does it mean - 10Y breakeven shorts with 0.8 beta?

"10Y breakeven shorts with 0.8 beta" "10Y breakeven shorts with long 80% nominal to eliminate long duration bias" Are the above two the same, what do they mean?
Mike loves math's user avatar
1 vote
1 answer
87 views

In a cleared inflation swap agreement, what determines how much "collateral" a party needs to deposit into the third party escrow account?

Does realized inflation or expected future inflation determine how much money needs to be placed into the escrow account each day?
JorgeT's user avatar
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1 answer
353 views

What happens to both sides of an inflation swap agreement if there is deflation?

If there is deflation does the Inflation receiver not only pay the fixed leg but also receives a reduced CPI? I.e. does he lose twice?
JorgeT's user avatar
  • 283
3 votes
3 answers
203 views

Can an individual hedge inflation that exceeds CPI-U?

Is there a way for an individual (i.e., excluding institutional tools and using only consumer products) in the U.S. to hedge inflation over the long term greater than that measured by CPI-U? ...
RCafe's user avatar
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1 vote
0 answers
227 views

"BTP ITALIA" Inflation Linker Pricing

I have some issue with pricing of Italian linker bonds (http://www.dt.tesoro.it/export/sites/sitodt/modules/documenti_en/debito_pubblico/titoli_di_stato/BTP_Italia.pdf) . The issue is their specific ...
jonny's user avatar
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1 vote
0 answers
192 views

How to apply multiplicative price seasonality to bond prices in quantlib?

Can someone please give a brief or any link which explains how to apply multiplicative price seasonality to inflation linked bonds in Quantlib using python modules. Have gone through most of the ...
AbhiGupta's user avatar
  • 111
3 votes
1 answer
406 views

how to simplify Inflation year-on-year option to Zero-coupon option

Belgrade 2004 paper basically proposes that inflation year-on-year volatilities (and hence yoy options) are basically the spread vols between the Zero-coupon vols from (t0 to T) minus the zero-coupon ...
Kiann's user avatar
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