Lars Kjaergaard models inflation using a three-factor Gaussian method. This gives a simple description of derivatives linked to inflation and interest rates, and allows for fast evaluation. He then shows how the model can be calibrated
In the past few years, there has been growing interest in inflation-linked products. This has happened both on the investor side, where inflation is seen as an independent asset class, and on the liability side, where more work has gone into identifying and hedging inflation risks.
Lars Kjaergaard is chief analyst at Nordea Markets in Copenhagen. He would like to thank Jesper Andreasen for reading and commenting on the article, and for early suggestions on the work. The views expressed are those of the author rather than of his institution. Email: [email protected]
More on Inflation Derivatives
Libor-like consensus methodology creates bad incentives, clients fear
Risk Awards 2015: UK bank married giant linker role with pension fund re-hedge
Risk Awards 2015: Utility found a new way to tackle bank break clauses
Traders point to lower volatility, but one big short is also blamed
Sign up for Risk.net email alerts
Sponsored video: MarketAxess
Sponsored video: Tradeweb
Multifonds talks to Custody Risk on being nominated for the Post-Trade Technology Vendor of the Year at the Custody Risk Awards 2014
Sponsored webinar: IBM Risk Analytics
There are no comments submitted yet. Do you have an interesting opinion? Then be the first to post a comment.