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Price Inflation Instruments

Create inflation instrument object, associate an inflation curve object, and specify pricing method

Inflation is an economic condition involving an increase in the general price level of goods and services over time. Inflation rate is defined as a percentage change in a reference index representing a basket of goods and services, such as the Consumer Price Index (CPI). Since inflation can significantly reduce the real value of an investment, many investors seek to hedge the inflation risk. Although there are several ways to protect against inflation, inflation derivatives such as inflation swaps provide some of the most effective hedges against inflation risk.

The object-based framework supports a workflow for creating instruments, models, and pricer objects to price financial instruments. Using these objects, you can price interest-rate, inflation, equity, commodity, FX, or credit derivative instruments. The object-based workflow is an alternative to pricing financial instruments using functions. Working with modular objects for instruments, models, and pricers, you can easily reuse these objects to compare instrument prices for different models and pricing engines. You can use the object-based workflow to price a single instrument or to price a collection of instruments in a portfolio. For more information on the workflow, see Get Started with Workflows Using Object-Based Framework for Pricing Financial Instruments.

Create an inflation instrument object using fininstrument, then associate an inflation curve object using inflationcurve, and then specify a pricing method using finpricer.

Functions

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fininstrumentCreate specified instrument object type
finpricerCreate pricing method
inflationbuildBuild inflation curve from market zero-coupon inflation swap rates
indexvaluesCalculate index values for inflationcurve object
priceCompute price for inflation instrument with Inflation pricer
inflationCashflowsCompute cash flows for InflationBond instrument
inflationCashflowsCompute cash flows for YearYearInflationSwap instrument
inflationCashflowsCompute cash flows for ZeroCouponInflationSwap instrument

Objects

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inflationcurveCreate inflationcurve object for interest-rate curve from dates and data
InflationBondInflationBond instrument object
YearYearInflationSwapYearYearInflationSwap instrument object
ZeroCouponInflationSwapZeroCouponInflationSwap instrument object
InflationCreate Inflation pricer object for InflationBond, YearYearInflationSwap, or ZeroCouponInflationSwap instrument using inflationcurve model

Examples and How To

Analyze Inflation-Indexed Instruments

This example shows how to analyze inflation-indexed instruments using Financial Toolbox™ and Financial Instruments Toolbox™.

Concepts

Get Started with Workflows Using Object-Based Framework for Pricing Financial Instruments

Use objects to model and price financial instruments.

Choose Instruments, Models, and Pricers

Select instruments, associated models, and associated pricers.

Supported Exercise Styles

The following table lists the interest-rate instrument objects with their associated models and pricers and supported Exercise styles.

Mapping Financial Instruments Toolbox Functions to Object-Based Framework for Instruments, Models, and Pricers

Mapping functions to a workflow using objects for instruments, models, and pricers.

Featured Examples