Infl Curve


Infl Curve is a
direct subtype of Valuation with functions Infl Curve Functions, keys Infl Curve keys and example object InfCrv that represents what practitioners understand under market available inflation rate information for all maturities.
The inflation curve is required whenever cash flows linked to some
Inflation Index - such as a specific Consumer Price Index - are present.
Its purpose is to provide the required forecasted future values of the Inflation Index that is compatible with a given set of market inputs.
The represented Inflation Index can be of two types:
Relative or YoY Rate

A curve with the Relative type can be constructed using market quotes of instruments representing either
Zero Inflation Swap or Inflation Bond and essentially consists of properly interpolated zero inflation swap rates r out of which the raw inflation index I(T) can be forecasted for any future time T using the formula:
I(T)/I(T₀) = (1+r)ᴸ⁽ᵀ⁻ᵀᵒ⁾
where T₀ is the base date of the inflation curve as given by
_Base Date and L(T-T₀) is the year fraction of the time interval from T₀ to T

A curve with the YoY Rate type can be constructed using market quotes of instruments representing
Year-On-Year Inflation Swap and essentially consists of properly interpolated year-on-year inflation swap rates out of which the raw inflation index can be forecasted for any future time T
Note, a year-on-year inflation swap rate YoY(T) at time T is defined as:
YoY(T) = I(T)/I(T-1Year) - 1
The inflation index is built for all possible times according to
Build Method and interpolated according to Interp Method