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Inflation Derivatives & Index Linked Bonds
Overview
This intensive 1-day course provides a comprehensive exploration of inflation-linked bonds and derivatives, with a particular focus on the UK market. Participants will begin by understanding how inflation is defined and measured, exploring the differences between key indices such as the Retail Price Index (RPI) and the Consumer Price Index (CPI). The course will also cover the typical cash flow structures used in index-linked securities.
A detailed examination of UK Index-linked Gilts follows, highlighting the differences between old-style and new-style quotation conventions, as well as methods for calculating the implied breakeven inflation rate. Additionally, the corporate bond market will be explored, with a focus on the role of Limited Price Indexation (LPI) in influencing pension fund activities.
In the afternoon session, attention shifts to inflation derivatives. Key topics include the mechanics, applications, and pricing of inflation swaps, along with caps and floors. Participants will also gain an intuitive understanding of the convexity adjustment in Year-on-Year (Y-o-Y) swaps.
Learning Objectives
Understand the mechanics of index-linked bonds and inflation derivatives
Gain clarity on the fundamental issues raised when inflation exposure is being managed
Analyse relative value in the index-linked and nominal bond markets through asset swaps
Understand the impact of seasonality on inflation swaps and related products
Learn how to use inflation derivatives for trading and managing risk
Understand the similarities and differences between options on interest rates and inflation
Gain familiarity with embedded inflation options
Who the course is for
Front-office sales
product control
research
Traders
Risk managers
Fund managers
Project finance and structured finance practitioners
Accountants, auditors, consultants
