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Re: Valuing CPI Bond at real yield curve

Posted by Peter Caspers-4 on Jun 03, 2014; 6:02pm
URL: http://quantlib.414.s1.nabble.com/Valuing-CPI-Bond-at-real-yield-curve-tp15354p15356.html

Hi Francois,
    if I get you right, your idea is to directly work in the real
currency (which indeed may work for zero inflation coupons and
nominal, I think ...). But why do you need to refer to CPI instruments
at all then and not just work with usual fix rate bonds and a yield
term structure for the real curve ?
best
Peter

On 3 June 2014 15:37, Luigi Ballabio <[hidden email]> wrote:

> I think you should be able to manage with InterpolatedZeroInflationCurve.
>
> Luigi
>
> On Tue, Jun 3, 2014 at 3:04 PM, Francois Botha <[hidden email]> wrote:
>> Hi,
>>
>> I want to value a CPI Bond using a real, not nominal, yield curve. As I
>> understand it, the current CPI Bond methodology requires some CPI indices, a
>> zero inflation curve and a nominal yield curve. I don't have all those
>> available, but I should be able to input a real curve instead of nominal
>> curve (used in discounting) and a flat zero inflation curve consisting of
>> rates = 0.
>>
>> It should give the same value. Conceptually, this method is also the same as
>> valuing a fixed rate bond, but with an added inflation ratio adjustment,
>> based on the CPI indices.
>>
>> But I'm struggling to create a zero inflation curve which is basically flat
>> and all 0s. I've tried using PiecewiseZeroInflationCurve and with some
>> instruments yielding 0s, but I end up with a curve that is not exactly flat
>> or zero. I suspect it's a consequence of the historic CPI indices and the
>> fact that they're interpolated.
>>
>> Are there any other ways, besides PiecewiseZeroInflationCurve to construct a
>> ZeroInflationCurve?
>>
>> thanks
>> Francois Botha
>>
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>
>
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"Graph Databases" is the definitive new guide to graph databases and their
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