Reducing approximation errors in LPI swaps
Reducing approximation errors in LPI swaps
A limited price index (LPI) is a UK inflation index used to define typical payout structures of UK pension plans. By definition, LPIs have annual returns that are equal to the corresponding annual UK inflation rates capped at y and floored at x, for some strikes x and y. The most common values for x and y are 0% and 5%, respectively.
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Reducing approximation errors in LPI swaps
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