Questions tagged [inflation]
The inflation tag has no usage guidance.
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110 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 + ...
1
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0answers
28 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?
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1answer
23 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?
0
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1answer
107 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?
3
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3answers
174 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? ...
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0answers
90 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 ...
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0answers
62 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 ...
3
votes
1answer
91 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 ...
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0answers
168 views
How to build an inflation term structure in QuantLib?
This is what I've got, but I'm getting weird results. Can you spot an error?:
...
2
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0answers
85 views
Understanding the link between inflation and credit spreads
I found a paper which uses inflation as an independant variable for credit spread. Unfortunately, the relationship is not explained in this paper. Further research got my to the paper of Kang/Pflueger ...
3
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0answers
69 views
Jarrow-Yildirim $\sigma_I$
Under the Jarrow-Yildirim model, the nominal short rate $r_n$, the real rate $r_r$ and index $I$
are modelled according to the following stochastic differential equations under the Martingale measure $...
2
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1answer
117 views
Where can I get some Inflation Option example quotes (year-on-year and zero-coupon)
I am writing an academic paper on calibration of inflation vanilla options.
I need to generate examples for the paper. Is there anywhere I can get example data for the Inflation year-on-year options, ...
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0answers
33 views
Inflation of Bitcoins
https://www.google.com/amp/s/www.coindesk.com/bitcoins-next-halving-rally-coming-soon-in-2019%3famp
suggests that the inflation rate of Bitcoins is around 4 percent. Considering the fact that ...
4
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1answer
92 views
Consumer Price Index (CPI) Inflation Impact on Price of Securities
I was wondering if there are any papers on CPI announcements' impact on the price of certain securities that are tied to inflation rates. I know there are derivatives for inflation rate, but I was ...
1
vote
1answer
81 views
Inflation Lag Bond Valuation
Question:
On 1st March 2006 a government issued a large tranche of an index-linked bond having
a term of 6 years. Coupons of 4% p.a. were payable half-yearly in arrears and the bond
was redeemed at ...
1
vote
1answer
52 views
How does inflation impact stock returns? Academic examples
For a literature survey in my university class, I have been asked the question "How does inflation impact stock returns?".
After reading some informal articles (in periodicals/ the general internet), ...
1
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2answers
109 views
What is the impact of inflationary expectation on stock price?
It is well known that, at least theoretically, stock prices are expected to rise in an inflationary environment. Now, my question is that does the same go for inflationary expectations; for example if ...
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votes
2answers
278 views
Relationship between BBB credit spreads and rising interest rates
A stylized fact in markets seems to be that there is a negative correlation between interest rates and corporate spreads - as interest rates rise, spreads tend to tighten and vice versa.
I'm ...
0
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2answers
131 views
Data for daily real interest rates
In a high frequency model i would like to add daily real interest rates (preferably short-term) as a variable.
However, I cannot seem to find either daily CPI data, or daily real interest rates (...
1
vote
1answer
529 views
What is the formula for the forward price of a inflation linked bond assuming there are coupons in the interim period and the deal is collateralised?
t2=forward settlement date
P=Spot clean price
AI0=Spot accrued interest
r=repo rate
t1=coupon payment date
AIt2= accrued interest of the forward settlement date
t0= now
Proceeds Method:
F(t2)=(...
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0answers
60 views
Does MV of IRS depend on inflation?
Question: At time=0 company A enters an 3y interest rate swap with a bank, where A recieves floating and pays fixed. After 1y, at t=1, the inflation changes from 1% to 3% does this affect the MV of ...
1
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1answer
546 views
convexity adjustment in YOY inflation swap , compared with TRS, and considering autocorrelation
a YOY inflation swaplet payoff is S2/S1 - 1 , where Si is the CPI at time i
and a TRS (total return swaplet) asset leg payoff is also the same except the underlying is an asset.
So it seems to me ...
0
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1answer
393 views
Pricing models for inflation-linked bonds?
I need to price an inflation-linked bond issued by italian government.
Which models are indicated for this bond?
I think I can price bond as a FRN plus an option on inflation rate.
But, first ...
0
votes
1answer
28 views
How can I measure wealth gain (loss) due to inequality?
As time passes, outside of inflation, the buying power of an individual changes relative to their peers wealth.
How can I measure the effect wealth inequality has relative to one's savings?
3
votes
1answer
194 views
Brazilian break even inflation curves
Brazil has had historically two sets of inflation bonds, the NTN-B and NTN-C series each with a different inflation index. The NTN-C is no longer issued.
When creating historical break even ...
0
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1answer
71 views
Measuring Medium-term Inflation expectations and real interest rate from OIS and Inflation Swaps
In this speech by Mario Draghi, in section '2:Responding to high unemployment', and subsection 'Boosting aggregate demand', Mario states «Over the month of August financial markets have indicated that ...
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2answers
1k views
What is the “inflation delta” of an option?
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 ...
2
votes
2answers
167 views
Trading with Inflation, Unemployment, Trade Deficit Information
I am trying to create a model for inflation for trading purposes. In his book The Market: Practice and Policy S. Nickell presents a model that relates unemployment, inflation and trade deficit. His ...
2
votes
2answers
126 views
How to calculate interest rate in this problem?
Problem: A loan of £12,000 is issued and is repaid in instalments of £300 at the end of each month for 4
years. Calculate the effective annual rate of interest for this loan.
What I tried-
But ...
3
votes
2answers
79 views
How do we include inflation in our calculations? [closed]
How do we include inflation in our compound interest calculations?
E.g. if we have current principal of 1000$ and the interest rate is 3% after 10 years we have <...
1
vote
1answer
486 views
How to get real interest rate from Nominal spot rates?
I have the nominal spot rates. Based on the Fisher equation , how to get the real interest rate ($r$) and the "expected inflation" ($\pi$) ?
2
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0answers
244 views
CVA for an inflation linked swap
I am trying to value an inflation linked swap and wish to calculate the associated CVA and DVA.
I think the best way to approach this would be via a simulation.
Suppose I wish to calculate CVA over ...
4
votes
1answer
273 views
How do you deal with Inflation lag in a MC simulation?
Consider the UK RPI index. This index is published every month around the 15th (give or take a few days). The publication refers to the RPI index of the month before, so there is a lag of a few weeks ...
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vote
2answers
763 views
Calculate single cashflow at maturity for a Total Return Inflation swap (zero coupon)
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 ...
2
votes
1answer
181 views
Is printing money really a bad thing?
I have 2 related questions about increasing money supply: (I know high school level economics.)
1) In an economy which has low growth and deflation, is it at all a bad thing to print money? In fact, ...
1
vote
1answer
55 views
Cause of long term inflation in the United States [closed]
Does the US government have a policy of printing money? If so what is this number called, who decides what it is, and where can I find it? If not what is the cause of our long term inflation? (I'm ...
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0answers
50 views
Index tracker and inflation
I'm trying to get my head around how inflation really affects index trackers. I've been looking at this question, but somehow misses the point I want (How To Account For Inflation Over Historical Data)...
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0answers
110 views
Pricing inflation lags
I've been looking into a short piece of maths I found on pricing inflation with payment delays, and was hoping someone could confirm whether my understanding was correct or if the maths isn't quite ...
4
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0answers
135 views
Inflation/Rates Correlation
I've been looking into a short piece of maths a colleague has written on pricing inflation with payment delays, and was hoping someone could confirm whether my understanding is correct, or if my ...
4
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2answers
348 views
Cross-Currency Inflation-Linked Swap
I am trying to find any references to cross-currency inflation-linked swaps. Have anyone encountered them and can describe how they work and how they differ from standard year on year inflation swaps?
3
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1answer
220 views
How can I break down the change in value for an inflation-linked bond
I am trying to decompose the change in value of an inflation-linked bond into two constituent parts:
1) That due to changing nominal rates on the issuer's non-linked bonds
2) That due to changing ...
1
vote
2answers
215 views
Probability of Hyperinflation as a function of Probability of Soverign Default
I'm looking for some academic research on modeling risk of hyperinflation. Specifically, I'm interested in modeling the probability of hyperinflation over some time interval (e.g., probability of ...
1
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2answers
625 views
How To Account For Inflation Over Historical Data
I believe inflation is greatly affecting my sample data, even when using percent-changes for movements. I have read this post, which recommends the formula ((Current-Base Year CPI) * Price) / (...
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1answer
741 views
Inflation modelling
I am trying to price an option on the Spanish CPI. The option is a European call with a single observation date. However, I am fairly new to inflation modelling, so there are two areas in which I ...
2
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1answer
371 views
Inflation swap liquidity versus inflation-linked bonds
In which markets are inflation swaps considered liquid enough to be the primary instrument for measuring market inflation expectations (compared to say, inflation-linked bonds)?
Are there specific ...
3
votes
2answers
990 views
How to calculate discounted inflation and growth?
Given the nominal bond yield and the inflation index bond yield (earning yield), how would one calculate the discounted inflation rate (discounted earning growth rates)?
These two factor seems to ...
3
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1answer
84 views
Accounting for Withdrawals
I am trying to wrap my head around the proper way to do this. I would like to simulate the portfolio value adjusted for inflation with a fixed withdrawal rate.
To simulate withdrawal rate, I will ...
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1answer
313 views
inflation > interest rate? [closed]
Currently, the federal reserve interest rate is 0-0.25%, and the inflation is 2-3%. Does this contradict the no-arbitrage principle? (The arbitrage being: borrow money at 0.25% and invest it in the "...
2
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1answer
387 views
Risk Decomposition of Index linked Bonds
Do you know how to decompose the risk of index linked bonds?
To value a inflation linked bond, one plugs the real zero curve into the bond PV calculation, the real interest rate is as the fisher ...
3
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1answer
195 views
Do bond credit ratings suffer from “ratings inflation”?
A friend of mine who studies game theory suggested that credit ratings from the bond ratings agencies, such as Moody's, S&P, and Fitch, may suffer from a sort of "ratings inflation" similar to the ...
