Affine Model of Inflation-Indexed Derivatives and Inflation Risk Premium

Ho, Hsiao-Wei; Huang, Henry Hongren; Yıldırım, Yıldıray

doi:10.2139/ssrn.1945575

Cited by 2 publications

(11 citation statements)

References 24 publications

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“…We consider the affine-based, stochastic factor model of [HHY14] as our term of comparison. Actually a setting such as theirs can be considered as a benchmark in empirical studies, as suggested by [DPS00].…”

Section: Calibration To Zciis and Comparison With A Benchmark Modelmentioning

confidence: 99%

“…Many models proposed to price inflation indexed derivatives fall in the class of affine models (see e.g. D'Amico, Kim and Wei [DKW18], Ho, Huang and Yildirim [HHY14] and Waldenberger [W17]). Singor et al [SGVBO13] consider a Heston-type inflation model in combination with a Hull-White model for interest rates, with non-zero correlations.…”

Section: Introductionmentioning

confidence: 99%

“…In order to show that the higher complexity of the numerical implementation of our valuation model is justified, we compare our valuation model to the well known model of D'Amico, Kim and Wei [DKW18] and Ho, Huang and Yildirim [HHY14]). The improvement in the error measures is significant (see Tables 1 and 2).…”

Section: Introductionmentioning

confidence: 99%

“…The general result by Costantini, Papi and D'Ippoliti [CPD12] is recalled in Appendix A. In Section 4 we compare our model to the model of [HHY14]: We calibrate both models to the market prices of Zero Coupon Inflation Indexed Swaps from January 2008 to October 2015 and measure the performances of the two models in fitting the market data (Table 1). We also carry out the same analysis for the period 2008-2011, when, due to the subprime crisis, interest rates dropped drastically and rapidly (Table 2).…”

Section: Introductionmentioning

confidence: 99%

See 3 more Smart Citations

Inflation, ECB and short-term interest rates: A new model, with calibration to market data

Antonacci

Costantini²,

D'Ippoliti³

et al. 2020

Preprint

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We propose a new model for the joint evolution of the European inflation rate, the European Central Bank official interest rate and the short-term interest rate, in a stochastic, continuous time setting.We derive the valuation equation for a contingent claim and show that it has a unique solution. The contingent claim payoff may depend on all three economic factors of the model and the discount factor is allowed to include inflation.Taking as a benchmark the model of Ho, H.W., Huang, H.H. and Yildirim, Y., Affine model of inflation-indexed derivatives and inflation risk premium, European Journal of Operational Research, 2014, we show that our model performs better on market data from 2008 to 2015.Our model is not an affine model. Although in some special cases the solution of the valuation equation might admit a closed form, in general it has to be solved numerically. This can be done efficiently by the algorithm that we provide.Our model uses many fewer parameters than the benchmark model, which partly compensates the higher complexity of the numerical procedure and also suggests that our model describes the behaviour of the economic factors more closely.

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Section: Calibration To Zciis and Comparison With A Benchmark Modelmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

See 2 more Smart Citations

Inflation, ECB and short-term interest rates: A new model, with calibration to market data

Antonacci

Costantini²,

D'Ippoliti³

et al. 2020

Preprint

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show abstract

“…For more information about inflation-indexed securities in general see Deacon et al (2004). Affine models for inflation-indexed derivatives and related securities are discussed thoroughly by Ho, Huang and Yildirim (2014). Our research follows the path of Mercurio (2005), who considers a specific case of such affine models.…”

Section: Introductionmentioning

confidence: 99%

Indexed Bonds With Mean-Reverting Risk Factors

Víg¹,

Vidovics-Dancs²

2017

ECMS 2017 Proceedings Edited by Zita Zoltay Paprika, Péter Horák, Kata Váradi, Péter Tamás Zwierczyk, Ágnes Vidovics-Dancs, Ján

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In this paper, we focus on the value of inflation-indexed bonds in an extended short rate model, which is a specific case of the general framework provided by Jarrow and Yildirim (2003). In the model, we assume mean-reverting stochastic dynamics under the risk neutral measure for both the short interest rate and the instantaneous inflation rate. We define the zero-coupon inflation-indexed bond, and first estimate its value by Monte Carlo simulation, then deduce an analytical formula as well. We briefly touch on the yield and inflation curves the model is able to produce.

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Affine Model of Inflation-Indexed Derivatives and Inflation Risk Premium

Cited by 2 publications

References 24 publications

Inflation, ECB and short-term interest rates: A new model, with calibration to market data

Inflation, ECB and short-term interest rates: A new model, with calibration to market data

Indexed Bonds With Mean-Reverting Risk Factors

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