Quotation Eksi-Altay, Zehra, Slinko, Irina. 2008. Inflation Linked Derivatives: Pricing Model for a Multi-Country Setting. European Summer School in Financial Mathematics, Paris, Frankreich, 07.09-14.09.


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Abstract

In this study we propose an arbitrage pricing model for inflation linked derivative instruments. We consider a multi-country setting where domestic and foreign nominal and real bonds are traded. Imposing no-arbitrage assumption immediately yields the usual definition of real exchange rate (RER). Moreover we get drift conditions, implied by the no-arbitrage, for real and nominal term structures of the domestic and foreign economies. Assuming martingale property for the the real exchange rate we find a relation between the real interest rates of the two economies. Introducing a forward contract into our model results with the forward real exchange rate which can be written in terms of the price of the domestic and foreign inflation indexed bonds.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title Inflation Linked Derivatives: Pricing Model for a Multi-Country Setting
Event European Summer School in Financial Mathematics
Year 2008
Date 07.09-14.09
Country France
Location Paris

Associations

People
Eksi-Altay, Zehra (Details)
External
Slinko, Irina (Sweden)
Organization
Institute for Statistics and Mathematics IN (Details)
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