Valuing Tips bond futures with the Jarrow-Yildirim model

Treasury inflation-protected securities (Tips) were first issued in the US fixed-income market in January 1997. After almost 10 years, the market capitalisation of the Tips bond market was $306 billion, which is around 8% of the market capitalisation of the nominal treasury securities.1 Tips bonds pay a constant coupon rate that is fully adjusted for inflation, based on the consumer price index for all urban consumers (CPI-U).2 By this adjustment mechanism, Tips investors can be immunised aga