Year-on-year inflation-indexed swap

A year-on-year inflation-indexed swap (YYIIS) is a standard derivative product over inflation rate. The underlying is a single consumer price index (CPI). The first swap of this kind was traded through the inter-dealer broker network in November 1999.

It is called a swap because each year there is a swap of a fixed amount against a floating amount, although in practice only a one way payment is made (fixed amount – floating amount).

Detailed flows

• Each year, at time $T_{i}$
  • Party B pays Party A the fixed amount $N{\phi _{i}}K$
  • Party A pays Party B the floating amount $N{\psi _{i}}[{\frac {I(T_{i})}{I(T_{i-1})}}-1]$

where:

• K is the contract fixed rate
• N the contract nominal value
• M the number of years corresponding to the deal maturity
• i the number of years (0 < i <= M)
• $\phi _{i}$ is the fixed-leg year fractions for the interval [Ti−1, Ti]
• $\psi _{i}$ is the floating-leg year fractions for the interval [Ti−1, Ti]
• $T_{0}$ is the start date
• $T_{i}$ is the time of the flow i
• $T_{M}$ is the maturity date (end of the swap)
• $I(T_{0})$ is the inflation at start date (time $T_{0}$)
• $I(T_{i})$ is the inflation at time of the flow i (time $T_{i}$)
• $I(T_{M})$ is the inflation at maturity date (time $T_{M}$)

See also

• Zero-Coupon Inflation-Indexed Swap (ZCIIS)