INDEXED BONDS AND HETEROGENEOUS AGENTS

Indexed Bonds With Mean-Reverting Risk Factors

In this paper, we focus on the value of inflation-indexed bonds in an extended short rate model, which is a specific case of the general framework provided by Jarrow and Yildirim (2003). In the model, we assume mean-reverting stochastic dynamics under the risk neutral measure for both the short interest rate and the instantaneous inflation rate. We define the zero-coupon inflation-indexed bond,...

Benefits and Limitations of Inflation Indexed Treasury Bonds

In recent years, members of Congress and academia have repeatedly urged the U.S. Treasury to issue some portion of its debt in the form of inflation indexed bonds. With an indexed bond, the interest and maturity value are adjusted by the rate of inflation over the life of the bond. Because the cash flow of an indexed bond is adjusted for inflation, the bond’s real value does not vary with infla...

Bond futures, inflation-indexed bonds, and inflation risk premium

We propose a new approach to measuring long-run inflation risk, the inflation risk premium, and inflation expectations for the UK over the period 1985–2012. By adding long-term bond futures to the information set of inflation-indexed and nominal bonds, inflation risk is measured as an incremental time-varying covariance obtained from a trivariate GARCH model with dynamic conditional correlation...

Estimating Inflation Expectations Using French Government Inflation-indexed Bonds

Ana del Río * We wish to thank Juan Ayuso, Fernando Restoy and participants in the seminar held at the Banco de España, especially Liliana Toledo, for helpful comments and suggestions. Abstract Inflation-indexed bonds are fixed-income securities whose nominal cash flows are adjusted to an inflation index. In countries where these securities exist, inflation expectations are sometimes estimated ...

Heterogeneous Agents Situated in Heterogeneous Spaces