Year-on-year inflation-indexed swap

Template:Unreferenced Template:Financial markets A year-on-year inflation-indexed swap (YYIIS) is a standard derivative product over inflation rate. The underlying is a single consumer price index (CPI).

It is called a swap because each year there is a swap of a fixed amount against a floating amount, although in practice 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 $N{\varphi }_{i}K$
  • Party A pays Party B the floating amount $N{\psi }_i[\frac{I(T_i)}{I(T_{i-1})}-1]$

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)
• ${\varphi }_i$ is the fixed-leg year fractions for the interval [Ti−1, Ti]
• ${\psi }_i$ 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 $T_M$)

See also

• Zero-Coupon Inflation-Indexed Swap (ZCIIS)