Pricing inflation-linked derivatives using the Jarrow-Yildirim model
In this thesis we price inflation linked swaps, Caplet, Floorlet and Option on real zero coupon bond on foreign-currency analogy, as Hughston (1998) [20]. The nominal assets are thought of as domestic assets, real assets as foreign assets and the consumer price index is interpreted as the exchange rate between the nominal and real assets. We price the inflation linked derivatives using Jarrow and Yildirim (2003) [23] three factor HJM model. We assume that volatilities of all asset price, including consumer price index, are deterministic.
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Department of Mathematics and Applied Mathematics