Year-on-Year Inflation-Indexed Swap

A year-on-year inflation-indexed swap (YYIIS) is a standard derivative product over inflation rate. The underlying is a single consumer price index (CPI).

It is called a swap because each year there is a swap of a fixed amount against a floating amount, although in practice only a one way payment is made (fixed amount – floating amount).

Detailed flows

* Each year, at time $T_i$
** Party B pays Party A the fixed amount $NK$
** Party A pays Party B the floating amount N frac - 1/math>
where:
* K is the contract fixed rate
* N the contract nominal value
* M the number of years corresponding to the deal maturity
* i the number of years (0 < i <= M)
* $\phi_i$ is the fixed-leg year fractions for the interval i−1, Ti* $\psi_i$ is the floating-leg year fractions for the interval i−1, Ti* $T_0$ is the start date
* $T_i$ is the time of the flow i
* $T_M$ is the maturity date (end of the swap)
* $I(T_0)$ is the inflation at start date (time $T_0$)
* $I(T_i)$ is the inflation at time of the flow i (time $T_i$)
* $I(T_M)$ is the inflation at maturity date (time $T_M$)

See also

* Zero-Coupon Inflation-Indexed Swap (ZCIIS)

References

{{Derivatives market

Inflation
Derivatives (finance)
Swaps (finance)