Year-on-Year Inflation-Indexed Swap
The Year-on-Year Inflation-Indexed Swap is a standard derivative product over Inflation rate. The underlying is a single Consumer price index.
It is called Swap because each year there is a swap of a fixed amount against a floating amount. But in reality only a one way payment is made.Detailed flows
- Each year, at time
- * Party B pays Party A the fixed amount
- * Party A pays Party B the floating amount
where:
- K is the contract fixed rate
- N the contract nominal value
- M the number of years corresponding to the deal maturity
- i the number of years
- ' is the fixed-leg year fractions for the interval
- ' is the floating-leg year fractions for the interval
- ' is the start date
- ' is the time of the flow i
- ' is the maturity date
- ' is the inflation at start date
- ' is the inflation at time of the flow i
- ' is the inflation at maturity date
