Zero-coupon inflation swap
A zero-coupon inflation swap (ZCIS), also called a zero-coupon inflation-indexed swap (ZCIIS), is a standard derivative product whose payoff depends on the inflation rate realized over a given period of time. The underlying asset is a single consumer price index (CPI).
Overview
A zero-coupon inflation swap (ZCIS), also called a zero-coupon inflation-indexed swap (ZCIIS), is a standard derivative product whose payoff depends on the inflation rate realized over a given period of time. The underlying asset is a single consumer price index (CPI). It is zero-coupon because there is only one cash flow at the maturity of the swap, without any intermediate coupon. It is called a swap because at maturity, one counterparty pays a fixed amount to the other in exchange for a floating amount (in this case linked to inflation). The final cash flow will therefore consist of the difference between the fixed amount and the value of the floating amount at expiry of the swap.
Detailed flows
At time
T
M
{\displaystyle T_{M}}
= M years Party B pays Party A the fixed amount
N [ ( 1 + K
)
M
− 1 ]
{\displaystyle N[(1+K)^{M}-1]}
Party A pays Party B the floating amount
N
[
I
(
T
M
)
I
(
See also
Year-on-Year Inflation-Indexed Swap (YYIIS)
Wikipedia contributors · Zero-coupon inflation swap · revision 1372431715 · CC BY-SA 4.0 · Plain text extracted and formatting adapted; tags derived from linked topics.