Inflation swaps - Mechanics of inflation swaps

Inflation swaps can reduce the complexity of hedging calculations in liability-driven investment. But is this tool really suitable for corporate pension funds?

Introduction

Liability driven investments require a new set of tools for asset managers and pension fund trustees. The complexity of hedging calculations is often increased due to indexation policies that transform pension obligations into real liabilities. Inflation swaps will reduce this complexity. They can simply be overlaid on an existing manager roaster without interfering with the current mandate structure or interest rate exposure. While this makes inflation hedging highly practical (easy