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Inflation and Inflation-Linked Products


Understanding Inflation and Inflation-Linked Products 

Presenter: Brice Benaben: Managing Director and Head of Inflation Research, New Sky Capital

Video Lectures:

Section 1 (Running Time: 1.16.01)

  • Introduction: forecasting inflation
  • Curves and Sensitivities
  • At the beginning… the linkers
  • The imperfect link between “linkers” and “conventionals”
  • Disconnection between “linkers” and “conventionals”

Section 2 (Running Time: 1.04.45)

  • Recent flows: hedging swaps with bonds
  • Development of the derivatives
  • Change in models
  • ZC swaps: lag and rebasing
  • Asset swaps: the link between the cash and derivatives markets

Section 3 (Running Time: 39.18)

  • Developments of Structure Notes
  • LDI demand
  • Latest developments
  • Last word


Part 1: Inflation, From Economic Indicator into a Financial Instrument  

  • Forecasting inflation: Philips Curve and impact of QE, forward guidance)
  • From macro-economic model into financial model: Fisher equation and inflation risk premium
  • Short term inflation: impact of commodity, currency shocks
  • Short term inflation: impact on 1) Inflation reset products and on 2) the carry of inflation linked products

Part 2: Inflation Products, From Understanding Their Structure into Trading Them

  • Evolution of the linear inflation instruments
  • Inflation-linked bonds: structure (multiplicative and additive structure) and important features (seasonality, carry, floor option)
  • Building tools to analyse the inflation-linked bonds (carry, seasonality, option adjustments)
  • Inflation swaps: the different structure
  • Building a forward CPI curves
  • Link between Inflation bonds and swap: ASW
  • Building tools to calculate accurately the ASW (par-par, net proceeds, z-spread)

Part 3: Modelling Inflation-linked Products

  • Evolution of inflation modelling: JY models and Market models
  • A closer look at the convexity adjustment
  • Example of the models’ calibration
  • Risk: a segmentation of the risk
  • Examples of risk projections

Part 4: Inflation Option

  • Evolution of the inflation option: YoY cap/floor, ZC cap/floor, real yield option
  • Understanding the smiles (UK, Euro-zone, US)
  • Example of inflation option pricers



Published date

7 November 2014



Presenter Bio

Brice Benaben

Brice is Managing Director and Head of Research at New Sky Capital, a hedge funds specialized in inflation Products. He has 15 years of investment experience. Previously, he has held positions as Managing Director and Global Head of Inflation Trading at Deutsche Bank, Deputy Head of Inflation at Citibank, Head of Inflation Structuring at ABN AMRO, Head of Fixed Income and Portfolio Strategy at Credit Agricole Indosuez, and Portfolio Manger/Trader at the IFC (World Bank Group). Brice is editor and co-author of "Inflation Sensitive Assets" (RiskBooks, upcoming with Stefania Perrucci), editor and co-author of "Inflation-Linked Products" (RiskBooks 2005), co-editor and co-author of "Inflation Risks and Products" (RiskBooks 2008), and has co-authored the chapter “Real Estate Indexes and Property Derivative Markets” in "Mortgage and Real Estate Finance" (RiskBooks 2008). He is a graduate of the University of Oxford, where he studied applied mathematics.