Inflation Question
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Inflation Experts,
the CPI Fixings für EUHICPXT for Dec 14 and Jan 15 are 117.01 and 115.13 respectively. Looking at market quotes for a 1y zero coupon swap I see 27-03-2015 0.443 30-03-2015 0.433 so no bigger movements. However, evaluating the 1y swap as of these dates, 27-03-2015 + 2bd = 31-03-2015 minus 3m lag => 31-12-14 => Base Fixing = Dec Fixing = 117.01 30-03-2015 + 2bd = 01-04-2015 minus 3m lag => 01-01-2015 => Base Fixing = Jan Fixing = 115.01 which would mean that the CPI projection changes drastically. I have the feeling that I am getting a convention wrong here. Can someone help ? Thanks Peter ------------------------------------------------------------------------------ Dive into the World of Parallel Programming The Go Parallel Website, sponsored by Intel and developed in partnership with Slashdot Media, is your hub for all things parallel software development, from weekly thought leadership blogs to news, videos, case studies, tutorials and more. Take a look and join the conversation now. http://goparallel.sourceforge.net/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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someone on Wilmott says
"However, some people are saying that there is a convention in the market that: 1. If the index is monthly interpolated, such as EU and UK; and 2. If the trade date and settlement (ie effective) date cross a month-end; then the lag of the swap is increased by a month. So the swap starts 1 or 2 April, but the lag is now 4 months, and so references the December index of the previous year. So as to be able to offset the floating legs of swaps traded earlier on in the month." which would explain the issue. Someone knows more details about this convention ? Thanks Peter On 31 March 2015 at 13:41, Peter Caspers <[hidden email]> wrote: > Inflation Experts, > > the CPI Fixings für EUHICPXT for Dec 14 and Jan 15 are 117.01 and > 115.13 respectively. > > Looking at market quotes for a 1y zero coupon swap I see > > 27-03-2015 0.443 > 30-03-2015 0.433 > > so no bigger movements. However, evaluating the 1y swap as of these dates, > > 27-03-2015 + 2bd = 31-03-2015 minus 3m lag => 31-12-14 => Base Fixing > = Dec Fixing = 117.01 > 30-03-2015 + 2bd = 01-04-2015 minus 3m lag => 01-01-2015 => Base > Fixing = Jan Fixing = 115.01 > > which would mean that the CPI projection changes drastically. > > I have the feeling that I am getting a convention wrong here. Can someone help ? > > Thanks > Peter ------------------------------------------------------------------------------ Dive into the World of Parallel Programming The Go Parallel Website, sponsored by Intel and developed in partnership with Slashdot Media, is your hub for all things parallel software development, from weekly thought leadership blogs to news, videos, case studies, tutorials and more. Take a look and join the conversation now. http://goparallel.sourceforge.net/ _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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Hi Peter,
i try to rephrase it in my words. I am not really an expert. Just worked across some things here!
Lets stick to the EUHICP Index. Because it is not interpolated (in swaps). Which makes it simpler.
If you are in march (as you are in your example) you trade december inflation. That is dec-14 -> dec-15. This will be as long as you are in march. This is expressed (a little more complicated i think) in the wilmott thread by the "extension" of the inflation lag to 4 month if the settlement crosses a month barrier.
Concerning the settlement date: In interest rate swaps it plays definitly a role. It determines the interest rate period. And thus via daycount and buisiness day conventions it determins the actual cash that is exchanged at the payment date.
With inflation: What is the interest period? You want to pay Nominal * (Index_final/Index_initial - 1). Where is the daycount here? With an interest rate swap you have Cash = Notional * rate * year-fraction (period). So you have to know all of this to get to your cash.
Thinks of course get more complicated if the index is interpolated.
Bernd
2015-03-31 14:05 GMT+02:00 Peter Caspers <[hidden email]>: someone on Wilmott says ------------------------------------------------------------------------------ BPM Camp - Free Virtual Workshop May 6th at 10am PDT/1PM EDT Develop your own process in accordance with the BPMN 2 standard Learn Process modeling best practices with Bonita BPM through live exercises http://www.bonitasoft.com/be-part-of-it/events/bpm-camp-virtual- event?utm_ source=Sourceforge_BPM_Camp_5_6_15&utm_medium=email&utm_campaign=VA_SF _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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Thanks, Bernd. To reinforce the assumed convention I can say that on
April 1st the ICAP zero coupon inflation swap quotes (which we use) jumped, seemingly compensating the change in the base index month. Peter On 7 April 2015 at 16:49, BL BL <[hidden email]> wrote: > Hi Peter, > > i try to rephrase it in my words. I am not really an expert. Just worked > across some things here! > > Lets stick to the EUHICP Index. Because it is not interpolated (in swaps). > Which makes it simpler. > > If you are in march (as you are in your example) you trade december > inflation. That is dec-14 -> dec-15. This will be as long as you are in > march. This is expressed (a little more complicated i think) in the wilmott > thread by the "extension" of the inflation lag to 4 month if the settlement > crosses a month barrier. > > Concerning the settlement date: In interest rate swaps it plays definitly a > role. It determines the interest rate period. And thus via daycount and > buisiness day conventions it determins the actual cash that is exchanged at > the payment date. > > With inflation: What is the interest period? You want to pay Nominal * > (Index_final/Index_initial - 1). Where is the daycount here? With an > interest rate swap you have Cash = Notional * rate * year-fraction (period). > So you have to know all of this to get to your cash. > > Thinks of course get more complicated if the index is interpolated. > > Bernd > > > 2015-03-31 14:05 GMT+02:00 Peter Caspers <[hidden email]>: >> >> someone on Wilmott says >> >> "However, some people are saying that there is a convention in the market >> that: >> >> 1. If the index is monthly interpolated, such as EU and UK; and >> 2. If the trade date and settlement (ie effective) date cross a month-end; >> >> then the lag of the swap is increased by a month. So the swap starts 1 >> or 2 April, but the lag is now 4 months, and so references the >> December index of the previous year. So as to be able to offset the >> floating legs of swaps traded earlier on in the month." >> >> which would explain the issue. Someone knows more details about this >> convention ? >> >> Thanks >> Peter >> >> >> On 31 March 2015 at 13:41, Peter Caspers <[hidden email]> wrote: >> > Inflation Experts, >> > >> > the CPI Fixings für EUHICPXT for Dec 14 and Jan 15 are 117.01 and >> > 115.13 respectively. >> > >> > Looking at market quotes for a 1y zero coupon swap I see >> > >> > 27-03-2015 0.443 >> > 30-03-2015 0.433 >> > >> > so no bigger movements. However, evaluating the 1y swap as of these >> > dates, >> > >> > 27-03-2015 + 2bd = 31-03-2015 minus 3m lag => 31-12-14 => Base Fixing >> > = Dec Fixing = 117.01 >> > 30-03-2015 + 2bd = 01-04-2015 minus 3m lag => 01-01-2015 => Base >> > Fixing = Jan Fixing = 115.01 >> > >> > which would mean that the CPI projection changes drastically. >> > >> > I have the feeling that I am getting a convention wrong here. Can >> > someone help ? >> > >> > Thanks >> > Peter >> >> >> ------------------------------------------------------------------------------ >> Dive into the World of Parallel Programming The Go Parallel Website, >> sponsored >> by Intel and developed in partnership with Slashdot Media, is your hub for >> all >> things parallel software development, from weekly thought leadership blogs >> to >> news, videos, case studies, tutorials and more. Take a look and join the >> conversation now. http://goparallel.sourceforge.net/ >> _______________________________________________ >> QuantLib-users mailing list >> [hidden email] >> https://lists.sourceforge.net/lists/listinfo/quantlib-users > > ------------------------------------------------------------------------------ BPM Camp - Free Virtual Workshop May 6th at 10am PDT/1PM EDT Develop your own process in accordance with the BPMN 2 standard Learn Process modeling best practices with Bonita BPM through live exercises http://www.bonitasoft.com/be-part-of-it/events/bpm-camp-virtual- event?utm_ source=Sourceforge_BPM_Camp_5_6_15&utm_medium=email&utm_campaign=VA_SF _______________________________________________ QuantLib-users mailing list [hidden email] https://lists.sourceforge.net/lists/listinfo/quantlib-users |
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