Year: 2024
Type: article
Abstract: The present paper addressesthe problem of valuing contingent claims on the term structure in a single good economy under uncertain inflation. In the context of arbitrage-free valuation, a simple diffusion model for pricing inflation -indexed securities is proposed. A martingale characterization of nominal and real prices is given and a stochastic generalization of the Fisher equation is provided. An example of two-factor model which can be used to value inflation-linked securitiesin practical applications, is also discussed. JEL classification numbers: G00, G10, G30. Keywords: Term structure of interest rates, Fisher equation, HJM-methodology, Inflation-linked securities.
DOI: 10.47260/jfia/1342
Authors: Cristiano Baldassari, Massimiliano Meschini, Paola Nascenzi
Institution: Università degli Studi della Tuscia
Language: English
Subfield: Finance
Domain: Social Sciences
Open Access status: bronze
OpenAlex ID: W4405437281