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Annual Review of Financial Economics

Volume 15, 2023

Inflation-Adjusted Bonds, Swaps, and Derivatives

Abstract

The purpose of this article is to review the literature on inflation-adjusted bonds, swaps, and derivatives. The methodology for valuation and risk management of these securities is an application of the foreign currency extension of a standard HJM term structure model. The two “currencies” in the extended model are real and nominal prices. Currently, for their use in monetary policy, the empirical literature primarily uses these models to estimate both the expected inflation rate and the inflation risk premium. A literature investigating the efficiency of the inflation derivative markets and a comparison of the relevant valuation models is almost nonexistent and a fruitful area for future research.

Keyword(s): break-even inflation rate, HJM model, inflation derivatives, inflation swaps, inflation-indexed bonds, JEL G12, JEL G13, term structure of interest rates
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/content/journals/10.1146/annurev-financial-110921-110855
2023-11-01
2024-04-29
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  • Article Type: Review Article

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