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FINANCIAL MARKET COURSES

Inflation-Linked Instruments - Pricing

Inflation-linked instruments (linkers) are used by entities such as banks, corporates and sovereigns to protect their assets and liabilities against the risk of inflation. Linkers pay investors a fixed rate plus an amount tied to an inflation index, thus protecting the investor's return against inflation. Inflation derivatives have many uses including transferring inflation risk, optimizing market timing, hedging portfolios, creating synthetic securities and conducting arbitrage.

 

In this course, you will learn how to price an index-linked bond and measure the sensitivity of the prices of these bonds to changes in real and nominal yields. You will also learn how to build an inflation curve in order to price inflation swaps, and how to value an inflation option.

  • OBJECTIVES

    On completion of this course, you will be able to:

    Price an index-linked bond

    Measure the price sensitivity of index-linked bonds

    Price an inflation derivative

  • COURSE OUTLINE

    Topic 1: Pricing Index-Linked Bonds

    Yield

    o Real Yield

    o Index-Linked Bond vs. Convectional Bond

    Pricing

    o Index-Linked Security

    o TIPS

    o Index-Linked Gilt

    o Index Annuity Bond

    Topic 2: Index-Linked Bond Price Sensitivity

    Price Sensitivity

    o Real Duration

    o Effective Duration

    o Other Measures

  • PREREQUISITE KNOWLEDGE

  • ESTIMATED COMPLETED TIME

    60 Minutes

INTERMEDIATE

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