Zero Coupon Inflation Swap - Definition

An Inflation Swap is a financial product that transfers inflation Risk between parties. These swaps are part of the broader class of inflation Derivative products, which includes any product whose value is based on the inflation Rate. An inflation swap is a linear inflation derivative, which means that, regardless of the inflation level, a change in the inflation rate corresponds to a particular change in the value of the swap. Investors use these products to buy and sell inflation risk to speculate or protect themselves from changes in the inflation rate. Some entities write inflation swaps to fund other investments that have similar risks associated with them.

Many inflation swaps are zero-coupon, which means that sums of money are exchanged only at the end of the life of the swap. These are commonly two-year or five-year swaps, and the inflation rate is cumulative over the entire period. Some swaps have coupons, which mean the parties exchange payments at the end of set periods, which can be every month or up to a year. The inflation rate payment is determined according to the annual, or year-on-year, inflation rate.



Terms near "Zero Coupon Inflation Swap"

Zero lot line
Zero Minus Tick
Zero Plus Tick
Zero Prepayment Assumption
Zero-Based Budgeting (ZBB)
Zero-Beta Portfolio
Zero-Coupon Bond
Zero-Coupon Certificate Of Deposit (CD)
Zero-Coupon Convertible
Zero-Coupon Mortgage
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