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Inflation-indexed securities are assets whose nominal cashflows
explicitly depend on inflation measures. An inflation-linked bond
for example adds to a nominal fixed coupon an inflation
compensation, which essentially has the effect that the real
(inflation adjusted) value of the coupons remains constant. Such a
bond offers protection from inflation risk or alternatively
insurance from future cash-flows being eaten up by inflation. This
risk is most prominent in pensions and the fact why almost all
pension funds at least to some extent invest into inflation indexed
bonds or more general inflation-indexed securities and
derivatives.
At the level of sovereign debt, it has now been recognized for
several decades that governments can reduce their borrowing costs
by issuing inflation-indexed through avoiding paying a costly
inflation risk premium. Indeed, this was the main motivation why
the UK and New Zealand first started issuing such securities in the
early 1980s, with most major economies following soon. S&P Dow Jones Indices publishes a large
variety of inflation linked bond indices.
But inflation linked securities fulfill another important
function. In pricing such derivatives, the markets process
information about future expected levels of inflation. This
information can be retrieved from time series of the price data and
allows to make even relatively short-term forecasts of inflation
levels (that is where monetary policy and macro models often fail).
There are many different ways to do this, some better and some
worse, but the importance of this aspect has recently been stressed
with the introduction of USD Inflation Expectation Index Family by the Inter
Continental Exchange in 2022. Information about short term
future inflation is crucial for investment and insurance.
This course is highly relevant for people working in the pension
fund management as well as asset and liability management where
cashflows are exposed to inflation risk, which obviously include
large parts of the insurance industry. Participants should know the
basics of cash-flow valuation, net present value and risk adjusted
discount rates.
Your early-bird registration fee is € 250.00 plus 19% VAT for
bookings by 19 December 2023. After this date, the fee will be €
335.00 plus 19% VAT.
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