A Market Model For Pricing Inflation Indexed Bonds: Pricing Inflation Indexed Bonds With Jumps Incorporation - Softcover

Inhaltsangabe

Protection against inflation is an essential part of the today's financial markets, particularly in high-inflation economies. Hence, nowadays inflation indexed instruments are being increasingly popular in the world financial markets. In this study, we focus on pricing of the inflation-indexed bonds which are the unique inflation-indexed instruments traded in the Turkish bond market. Firstly, we review the Jarrow-Yıldırım model which deals with pricing of the inflation-indexed instruments within the HJM framework. Then, we propose a pricing model that is an extension of the Jarrow-Yıldırım model. The model allows instantaneous forward rates, inflation index and bond prices to be driven by both a standard Brownian motion and a finite number of Poisson processes. A closed-form pricing formula for an European call option on the inflation index is also derived.

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