Year on Year Inflation Indexed Swap - Alchetron, the free social encyclopedia

The Year-on-Year Inﬂation-Indexed Swap (YYIIS) ia a standard derivative product over Inflation rate. The underlying asset is a single Consumer price index (CPI).

It is called Swap because each year there is a swap of a ﬁxed amount against a ﬂoating amount. But in reality only a one way payment is made (ﬁxed amount - ﬂoating amount).

Detailed flows

Each year, at time T i

Party B pays Party A the ﬁxed amount N ϕ i K

Party A pays Party B the ﬂoating amount N ψ i [ I ( T i ) I ( T i − 1 ) − 1 ]

where:

K is the contract ﬁxed rate

N the contract nominal value

M the number of years corresponding to the deal maturity

i the number of years (0 < i <= M)

ϕ i is the ﬁxed-leg year fractions for the interval [Ti−1, Ti]

ψ i is the ﬂoating-leg year fractions for the interval [Ti−1, Ti]

T 0 is the start date

T i is the time of the flow i

T M is the maturity date (end of the swap)

I ( T 0 ) is the inflation at start date (time T 0 )

I ( T i ) is the inflation at time of the flow i (time T i )

I ( T M ) is the inflation at maturity date (time T M )

References

Year-on-Year Inflation-Indexed Swap Wikipedia

(Text) CC BY-SA