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inflationbuild

Build inflation curve from market zero-coupon inflation swap rates

Description

example

InflationCurve = inflationbuild(BaseDate,BaseIndexValue,ZCISDates,ZCISRates) builds an inflation curve from market zero-coupon inflation swap (ZCIS) rates. The InflationCurve output is an inflationcurve object.

example

myInflationCurve = inflationbuild(___,Name,Value) specifies options using one or more name-value pair arguments in addition to any of the input argument combinations in the previous syntax. For example, myInflationCurve = inflationbuild(BaseDate,BaseIndexValue,ZCISDates,ZCISRates,'Seasonality',SeasonalRates) builds an inflationcurve object from market zero ZCIS dates and rates.

Examples

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This example shows the workflow to build an inflationcurve object from zero-coupon inflation swap (ZCIS) rates using inflationbuild.

Define the inflation curve parameters.

BaseDate = datetime(2020,9,20);
BaseIndexValue = 100;
ZCISTimes = [calyears([1 2 3 4 5 7 10 20 30])]';
ZCISRates = [0.51 0.65 0.87 0.92 0.95 1.42 1.75 2.03 2.54]'./100;
ZCISDates = BaseDate + ZCISTimes;
SeasonalRates = [-0.19 -0.09 -0.04 0.1 0.16 0.11 0.26 0.17 -0.07 -0.08 -0.14 -0.19]'./100;

Use inflationbuild to create an inflationcurve object.

myInflationCurve = inflationbuild(BaseDate,BaseIndexValue,ZCISDates,ZCISRates,'Seasonality',SeasonalRates)
myInflationCurve = 
  inflationcurve with properties:

                    Basis: 0
                    Dates: [10x1 datetime]
     InflationIndexValues: [10x1 double]
    ForwardInflationRates: [9x1 double]
              Seasonality: [12x1 double]

Input Arguments

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Base date of inflation curve, specified as a scalar datetime, serial date number, date character vector, or date string.

Data Types: double | char | string | datetime

Base index value of inflation curve, specified as a scalar numeric.

Data Types: double

Market ZCIS maturity dates minus lag, specified as an NINST-by-1 vector of datetimes, serial date numbers, cell array of date character vectors, or date string array.

Data Types: double | cell | char | string | datetime

Market ZCIS rates, specified as an NINST-by-1 vector of decimals.

Data Types: double

Name-Value Arguments

Specify optional comma-separated pairs of Name,Value arguments. Name is the argument name and Value is the corresponding value. Name must appear inside quotes. You can specify several name and value pair arguments in any order as Name1,Value1,...,NameN,ValueN.

Example: myInflationCurve = inflationbuild(BaseDate,BaseIndexValue,ZCISDates,ZCISRates,'Seasonality',SeasonalRates)

Day count basis, specified as the comma-separated pair consisting of 'Basis' and a scalar integer.

  • 0 — actual/actual

  • 1 — 30/360 (SIA)

  • 2 — actual/360

  • 3 — actual/365

  • 4 — 30/360 (PSA)

  • 5 — 30/360 (ISDA)

  • 6 — 30/360 (European)

  • 7 — actual/365 (Japanese)

  • 8 — actual/actual (ICMA)

  • 9 — actual/360 (ICMA)

  • 10 — actual/365 (ICMA)

  • 11 — 30/360E (ICMA)

  • 12 — actual/365 (ISDA)

  • 13 — BUS/252

For more information, see Basis.

Data Types: double

Seasonal adjustment rates, specified as the comma-separated pair consisting of 'Seasonality' and a 12-by-1 vector in decimals for each month ordered from January to December. The rates are annualized and continuously compounded seasonal rates that are internally corrected to add to 0.

Data Types: double

First month inflation index, specified as the comma-separated pair consisting of 'FirstMonthIndex' and a positive numeric.

Data Types: double

Output Arguments

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Inflation curve, returned as an inflationcurve object. The object has the following properties:

  • Basis

  • Dates

  • InflationIndexValues

  • ForwardInflationRates

  • Seasonality

Algorithms

Build an inflation curve from a series of breakeven zero-coupon inflation swap (ZCIS) rates:

I(0,T1Y)=I(T0)(1+b(0;T0,T1Y))T1YT0I(0,T2Y)=I(T0)(1+b(0;T0,T2Y))T2YT0I(0,T3Y)=I(T0)(1+b(0;T0,T3Y))T3YT0...I(0,Ti)=I(T0)(1+b(0;T0,Ti))TiT0

where

  • I(0,Ti) is the breakeven inflation index reference number for maturity date Ti.

  • I(T0) is the base inflation index value for the starting date T0.

  • b(0;T0,Ti) is the breakeven inflation rate for the ZCIS maturing on Ti.

The ZCIS rates typically have maturities that increase in whole number of years, so the inflation curve is built on an annual basis. From the annual basis inflation curve, the annual unadjusted (that is, not seasonally adjusted) forward inflation rates are computed as follows:

fi=1(TiTi1)log(I(0,Ti)I(0,Ti1))

The unadjusted forward inflation rates are used for interpolating and also for incorporating seasonality to the inflation curve.

For monthly periods that are not a whole number of years, seasonal adjustments can be made to reflect seasonal patterns of inflation within the year. These 12 monthly seasonal adjustments are annualized and they add up to zero to ensure that the cumulative seasonal adjustments are reset to zero every year.

I(0,Ti)=I(T0)exp(T0Tif(u)du))exp(T0Tis(u)du))I(0,Ti)=I(0,Ti1)exp((TiTi1)(fi+si))

where

  • I(0,Ti) is the breakeven inflation index reference number.

  • I(0,Ti1) is the previous inflation reference number.

  • fi is the annual unadjusted forward inflation rate.

  • si is the annualized seasonal component for the period [Ti1,Ti].

The first year seasonal adjustment may need special treatment because, typically, the breakeven inflation reference number of the first month is already known. If that is the case, the unadjusted forward inflation rate for the first year needs to be recomputed for the remaining 11 months.

Introduced in R2021a