Zero-coupon inflation swap
A zero-coupon inflation swap, also called a zero-coupon inflation-indexed swap, 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.
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. 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 = M years
- * Party B pays Party A the fixed amount
- * Party A pays Party B the floating amount
- is the contract fixed rate
- the contract nominal value
- the number of years
- is the start date
- is the maturity date
- is the inflation consumer price index at start date
- is the inflation consumer price index at maturity date