The affine inflation market models

Stefan Waldenberger*

*Korrespondierende/r Autor/-in für diese Arbeit

Publikation: Beitrag in einer FachzeitschriftArtikelBegutachtung

Abstract

Interest rate market models, such as the LIBOR market model, have the advantage that the basic model quantities are directly observable in financial markets. Inflation market models extend this approach to inflation markets, where two types of swaps, zero-coupon and year-on-year inflation-indexed swaps, are the basic observable products. For inflation market models considered so far, closed formulas exist for only one type of swap, but not for both. The model in this paper uses affine processes in such a way that prices for both types of swaps can be calculated explicitly. Furthermore, call and put options on both types of swap rates can be calculated using one-dimensional Fourier inversion formulas. Using the derived formulas, we present an example calibration to market data.

Originalspracheenglisch
Seiten (von - bis)281-301
Seitenumfang21
FachzeitschriftApplied Mathematical Finance
Jahrgang24
Ausgabenummer4
DOIs
PublikationsstatusVeröffentlicht - 4 Juli 2017

ASJC Scopus subject areas

  • Finanzwesen
  • Angewandte Mathematik

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