Price Inflation Instruments

Inflation is an economic condition involving an increase in the general price level of goods and services over time. Inflation rate is defined as a percentage change in a reference index representing a basket of goods and services, such as the Consumer Price Index (CPI). Since inflation can significantly reduce the real value of an investment, many investors seek to hedge the inflation risk. Although there are several ways to protect against inflation, inflation derivatives such as inflation swaps provide some of the most effective hedges against inflation risk.

The object-based framework supports a workflow for creating instruments, models, and pricer objects to price financial instruments. Using these objects, you can price interest-rate, inflation, equity, commodity, FX, or credit derivative instruments. The object-based workflow is an alternative to pricing financial instruments using functions. Working with modular objects for instruments, models, and pricers, you can easily reuse these objects to compare instrument prices for different models and pricing engines. You can use the object-based workflow to price a single instrument or to price a collection of instruments in a portfolio. For more information on the workflow, see Get Started with Workflows Using Object-Based Framework for Pricing Financial Instruments.

Create an inflation instrument object using fininstrument, then associate an inflation curve object using inflationcurve, and then specify a pricing method using finpricer.