Year-on-Year Inflation-Indexed Swap

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 $N{\phi_i}K$
  • 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)
• $\phi_i$ 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)