# The affine inflation market models

Stefan Waldenberger

Research output: Contribution to journalArticleResearchpeer-review

### 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.

Original language English 281-301 21 Applied Mathematical Finance 24 4 https://doi.org/10.1080/1350486X.2017.1378582 Published - 4 Jul 2017

### Fingerprint

Market Model
Swap
Inflation
Interest Rate Models
Inversion Formula
Financial Markets
Calibration
Swaps
Market model
Closed
Zero
Model

### Keywords

• affine processes
• inflation options
• Market models

### ASJC Scopus subject areas

• Finance
• Applied Mathematics

### Cite this

The affine inflation market models. / Waldenberger, Stefan.

In: Applied Mathematical Finance, Vol. 24, No. 4, 04.07.2017, p. 281-301.

Research output: Contribution to journalArticleResearchpeer-review

Waldenberger, Stefan. / The affine inflation market models. In: Applied Mathematical Finance. 2017 ; Vol. 24, No. 4. pp. 281-301.
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