Research and publications

Hedging Inflation-Linked Liabilities without Inflation-Linked Instruments through Long/Short Investments in Nominal Bonds

In the absence of inflation-linked bonds or inflation swaps, no perfect hedging strategy exists for inflation-linked liabilities, so nominal bonds are often used as substitute hedging instruments. ...

Author(s) :

Lionel Martellini, Vincent Milhau, Andrea Tarelli

Summary :

In the absence of inflation-linked bonds or inflation swaps, no perfect hedging strategy exists for inflation-linked liabilities, so nominal bonds are often used as substitute hedging instruments. This article provides a formal analysis of the problem of hedging inflation-linked liabilities with nominal bonds in the presence of real rate uncertainty as well as realized and expected inflation risks. 

Type : Academic Publication
Date : 20/01/2015
Keywords :

ALM and Asset Allocation Solutions