inflationbuild

Build inflation curve from market zero-coupon inflation swap rates

Since R2021a

Syntax

InflationCurve = inflationbuild(BaseDate,BaseIndexValue,ZCISDates,ZCISRates)

myInflationCurve = inflationbuild(___,Name,Value)

Description

InflationCurve = inflationbuild(BaseDate,BaseIndexValue,ZCISDates,ZCISRates) builds an inflation curve from market zero-coupon inflation swap (ZCIS) rates. The InflationCurve output is an inflationcurve object.

myInflationCurve = inflationbuild(___,Name,Value) specifies options using one or more name-value pair arguments in addition to any of the input argument combinations in the previous syntax. For example, myInflationCurve = inflationbuild(BaseDate,BaseIndexValue,ZCISDates,ZCISRates,'Seasonality',SeasonalRates) builds an inflationcurve object from market zero ZCIS dates and rates.

Examples

Build InflationCurve from Zero-Coupon Inflation Swap Rates Using InflationBuild

This example shows the workflow to build an inflationcurve object from zero-coupon inflation swap (ZCIS) rates using inflationbuild.

Define the inflation curve parameters.

BaseDate = datetime(2020,9,20);
BaseIndexValue = 100;
ZCISTimes = [calyears([1 2 3 4 5 7 10 20 30])]';
ZCISRates = [0.51 0.65 0.87 0.92 0.95 1.42 1.75 2.03 2.54]'./100;
ZCISDates = BaseDate + ZCISTimes;
SeasonalRates = [-0.19 -0.09 -0.04 0.1 0.16 0.11 0.26 0.17 -0.07 -0.08 -0.14 -0.19]'./100;

Use inflationbuild to create an inflationcurve object.

myInflationCurve = inflationbuild(BaseDate,BaseIndexValue,ZCISDates,ZCISRates,'Seasonality',SeasonalRates)

myInflationCurve = 
  inflationcurve with properties:

                    Basis: 0
                    Dates: [10x1 datetime]
     InflationIndexValues: [10x1 double]
    ForwardInflationRates: [9x1 double]
              Seasonality: [12x1 double]

Input Arguments

BaseDate — Base date of inflation curve

datetime scalar | string scalar | date character vector

Base date of inflation curve, specified as a scalar datetime, string, or data character vector.

To support existing code, inflationbuild also accepts serial date numbers as inputs, but they are not recommended.

BaseIndexValue — Base index value of inflation curve

numeric

Base index value of inflation curve, specified as a scalar numeric.

Data Types: double

ZCISDates — Market ZCIS maturity dates minus lag

datetime array | string array | date character vector

Market ZCIS maturity dates minus lag, specified as an NINST-by-1 vector using a datetime array, string array, or date character vectors.

To support existing code, inflationbuild also accepts serial date numbers as inputs, but they are not recommended.

ZCISRates — Market ZCIS rates

decimal

Market ZCIS rates, specified as an NINST-by-1 vector of decimals.

Data Types: double

Name-Value Arguments

Specify optional pairs of arguments as Name1=Value1,...,NameN=ValueN, where Name is the argument name and Value is the corresponding value. Name-value arguments must appear after other arguments, but the order of the pairs does not matter.

Before R2021a, use commas to separate each name and value, and enclose Name in quotes.

Example: myInflationCurve = inflationbuild(BaseDate,BaseIndexValue,ZCISDates,ZCISRates,'Seasonality',SeasonalRates)

Basis — Day count basis

0 (actual/actual) (default) | integer from 0 to 13

Day count basis, specified as the comma-separated pair consisting of 'Basis' and a scalar integer.

• 0 — actual/actual

• 1 — 30/360 (SIA)

• 2 — actual/360

• 3 — actual/365

• 4 — 30/360 (PSA)

• 5 — 30/360 (ISDA)

• 6 — 30/360 (European)

• 7 — actual/365 (Japanese)

• 8 — actual/actual (ICMA)

• 9 — actual/360 (ICMA)

• 10 — actual/365 (ICMA)

• 11 — 30/360E (ICMA)

• 12 — actual/365 (ISDA)

• 13 — BUS/252

For more information, see Basis.

Data Types: double

Seasonality — Seasonal adjustment rates

12-by-1 vector of 0s (no seasonality) (default) | decimal

Seasonal adjustment rates, specified as the comma-separated pair consisting of 'Seasonality' and a 12-by-1 vector in decimals for each month ordered from January to December. The rates are annualized and continuously compounded seasonal rates that are internally corrected to add to 0.

Data Types: double

FirstMonthIndex — First month inflation index

[] (not known) (default) | positive numeric

First month inflation index, specified as the comma-separated pair consisting of 'FirstMonthIndex' and a positive numeric.

Data Types: double

Output Arguments

InflationCurve — Inflation curve

inflationcurve object

Inflation curve, returned as an inflationcurve object. The object has the following properties:

• Basis

• Dates

• InflationIndexValues

• ForwardInflationRates

• Seasonality

Algorithms

Build an inflation curve from a series of breakeven zero-coupon inflation swap (ZCIS) rates:

$$\begin{array}{l}I(0,T_{1Y})=I(T_0){(}^1\\ I(0,T_{2Y})=I(T_0){(}^1\\ I(0,T_{3Y})=I(T_0){(}^1\\ \mathrm{...}\\ I(0,T_i)=I(T_0){(}^1\end{array}$$

where

• $$I(0,T_i)$$ is the breakeven inflation index reference number for maturity date T_i.

• $$I(T_0)$$ is the base inflation index value for the starting date T₀.

• $$b(0;T_0,T_i)$$ is the breakeven inflation rate for the ZCIS maturing on T_i.

The ZCIS rates typically have maturities that increase in whole number of years, so the inflation curve is built on an annual basis. From the annual basis inflation curve, the annual unadjusted (that is, not seasonally adjusted) forward inflation rates are computed as follows:

$$f_i=\frac{1}{(T_i-T_{i-1})}\log \left(\frac{I(0,T_i)}{I(0,T_{i-1})}\right)$$

The unadjusted forward inflation rates are used for interpolating and also for incorporating seasonality to the inflation curve.

For monthly periods that are not a whole number of years, seasonal adjustments can be made to reflect seasonal patterns of inflation within the year. These 12 monthly seasonal adjustments are annualized and they add up to zero to ensure that the cumulative seasonal adjustments are reset to zero every year.

$$\begin{array}{l}I(0,T_i)=I(T_0)\exp \left({\displaystyle \underset{T_0}{\overset{T_i}{\int }}f(u)du)}\right)\exp \left({\displaystyle \underset{T_0}{\overset{T_i}{\int }}s(u)du)}\right)\\ I(0,T_i)=I(0,T_{i-1})\exp ((T_i-T_{i-1})(f_i+s_i))\end{array}$$

where

• $$I(0,T_i)$$ is the breakeven inflation index reference number.

• $$I(0,T_{i-1})$$ is the previous inflation reference number.

• f_i is the annual unadjusted forward inflation rate.

• s_i is the annualized seasonal component for the period $$[T_{i-1},T_i]$$.

The first year seasonal adjustment may need special treatment because, typically, the breakeven inflation reference number of the first month is already known. If that is the case, the unadjusted forward inflation rate for the first year needs to be recomputed for the remaining 11 months.

Version History

Introduced in R2021a

R2022b: Serial date numbers not recommended

Although inflationbuild supports serial date numbers, datetime values are recommended instead. The datetime data type provides flexible date and time formats, storage out to nanosecond precision, and properties to account for time zones and daylight saving time.

To convert serial date numbers or text to datetime values, use the datetime function. For example:

t = datetime(738427.656845093,"ConvertFrom","datenum");
y = year(t)

y =

        2021

There are no plans to remove support for serial date number inputs.