uk rpi model hi zimin !
please find attached for your review the uk rpi model , derived by
bootstrapping rpi swaps .
it ' s a very simple model and here are its specifics :
swap structure
payment : semi / semi act / 365 f
>
> yoyukrpi = ( ukrpi ( p - 2 ) / ukrpi ( p - 14 ) - 1 ) / 2
> p = payment month
>
the first payment is the latest known historical rpi , february 2000 , 2 . 32 % .
assumptions
* constant cashflows between the quoted years ( as opposed to interpolating
swaps which distorts the curve a lot ) . this explains the atrocious look of
the " raw " curve . it is then smoothed with a macro , which anjam wrote .
* mid point of the swaps is used for deriving the curve ;
* discount rate is libor and i solve for the coupon rate , which is the rpi
yoy rate ;
* the above is solved separately for each quoted period ( e . g . 2 yrs , 5 yrs )
and rpi rates are determined for the incremental portion .
by forecasting rpi in the above method we are able to lock in and deliver the
forecasted levels .
looking forward to your comments and seeing you in london !
best regards ,
martina
x 34327
uk rpi model
hi zimin !
please find attached for your review the uk rpi model , derived by
bootstrapping rpi swaps .
it ' s a very simple model and here are its specifics :
swap structure
payment : semi / semi act / 365 f
>
> yoyukrpi = ( ukrpi ( p - 2 ) / ukrpi ( p - 14 ) - 1 ) / 2
> p = payment month
>
the first payment is the latest known historical rpi , february 2000 , 2 . 32 % .
assumptions
* constant cashflows between the quoted years ( as opposed to interpolating
swaps which distorts the curve a lot ) . this explains the atrocious look of
the " raw " curve . it is then smoothed with a macro , which anjam wrote .
* mid point of the swaps is used for deriving the curve ;
* discount rate is libor and i solve for the coupon rate , which is the rpi
yoy rate ;
* the above is solved separately for each quoted period ( e . g . 2 yrs , 5 yrs )
and rpi rates are determined for the incremental portion .
by forecasting rpi in the above method we are able to lock in and deliver the
forecasted levels .
looking forward to your comments and seeing you in london !
best regards ,
martina
x 34327