This paper proposes a pricing model for inflation-linked bonds. Our proposal is developed starting from a Vasicek model of the instantaneous inflation rate process and the Cox, Ingersoll and Ross model for the nominal instantaneous risk-free interest rate process. Instead of adopting the standard approach of a cross-section estimation of the term structure of real interest rates, this work proposes a pricing model based on estimation of the inflation risk premium. The model is applied to Treasury Inflation Protected Securities, which are inflation-linked bonds issued by the U.S. Department of the Treasury. Empirical validation is carried out on data for the period 1999–2005.

Pricing Inflation-Linked Bonds

FALBO, PAOLO;PARIS, Francesco Maria;PELIZZARI, CRISTIAN
2010-01-01

Abstract

This paper proposes a pricing model for inflation-linked bonds. Our proposal is developed starting from a Vasicek model of the instantaneous inflation rate process and the Cox, Ingersoll and Ross model for the nominal instantaneous risk-free interest rate process. Instead of adopting the standard approach of a cross-section estimation of the term structure of real interest rates, this work proposes a pricing model based on estimation of the inflation risk premium. The model is applied to Treasury Inflation Protected Securities, which are inflation-linked bonds issued by the U.S. Department of the Treasury. Empirical validation is carried out on data for the period 1999–2005.
File in questo prodotto:
Non ci sono file associati a questo prodotto.

I documenti in IRIS sono protetti da copyright e tutti i diritti sono riservati, salvo diversa indicazione.

Utilizza questo identificativo per citare o creare un link a questo documento: https://hdl.handle.net/11379/26728
 Attenzione

Attenzione! I dati visualizzati non sono stati sottoposti a validazione da parte dell'ateneo

Citazioni
  • ???jsp.display-item.citation.pmc??? ND
  • Scopus 7
  • ???jsp.display-item.citation.isi??? 7
social impact