World Library  
Flag as Inappropriate
Email this Article

Zero-Coupon Inflation-Indexed Swap

Article Id: WHEBN0026050383
Reproduction Date:

Title: Zero-Coupon Inflation-Indexed Swap  
Author: World Heritage Encyclopedia
Language: English
Subject: Inflation swap, Year-on-Year Inflation-Indexed Swap, Inflation, Amortising swap, Commodore option
Collection:
Publisher: World Heritage Encyclopedia
Publication
Date:
 

Zero-Coupon Inflation-Indexed Swap

The Zero-Coupon Inflation Swap (ZCIS) is a standard derivative product which payoff depends on the Inflation rate realized over a given period of time. The underlying asset is a single Consumer price index (CPI).

It is called Zero-Coupon because there is only one cash flow at the maturity of the swap, without any intermediate coupon.

It is called Swap because at maturity date, one counterparty pays a fixed amount to the other in exchange for a floating amount (in this case linked to inflation). The final cash flow will therefore consist of the difference between the fixed amount and the value of the floating amount at expiry of the swap.

Detailed Flows

  • At time T_M = M years
    • Party B pays Party A the fixed amount N[(1 + K)^M - 1]
    • Party A pays Party B the floating amount N[\frac{I(T_M)}{I(T_0)} - 1]

where:

  • K is the contract fixed rate
  • N the contract nominal value
  • M the number of years
  • T_0 is the start date
  • T_M is the maturity date (end of the swap)
  • I(T_0) is the inflation at start date (time T_0)
  • I(T_M) is the inflation at maturity date (time T_M)

See also

This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and USA.gov, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for USA.gov and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
 
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
 
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.
 



Copyright © World Library Foundation. All rights reserved. eBooks from World eBook Library are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.