Deriscope ## The Excel Derivatives Periscope

##### Coverage

Zero_Inflation_Swap

The *Zero Inflation Swap* is a financial contract where one party - the inflation receiver - pays a single fixed rate coupon *Fxd* at maturity *T* and receives a single floating payment *Flt* linked to a specific inflation index from the other party - the inflation payer.

Formally, assuming the maturity *T* can be expressed as *M* number of years from swap inception, then:

*Fxd = N[(1+r/f)^(Mf) - 1]*

where *N* is the swap notional, *f* is the recompounding frequency of the fixed rate *r* and

*Flt = N[I(T-lag)/I(T0-lag) - 1]*

where *I(t)* is the value of the referenced inflation index at time *t* with *T0* being the date of the swap inception and *lag* being a contractually specified time lag.

Note the QuantLib implementation assumes *f = 1*

Furthermore, for dates on which no directly applicable published inflation data exist, the referenced inflation index also depends on interpolation assumptions.