May 21st, 2006, 10:06 pm
yes an index. HICPXT (inflation EU excl. tobacco, bloomberg cptfemu). The maturity of the bond is 10 yr, ...Now I have any ideas about the level of the vol, but I did not imagine it was so low, at the order of 1-2 %.Given that the correlation is about zero and vol is low, the below payoff can be decomposed under the assumption of I>0 in a short call spread option and a long floating euribor so that I apply the Kirk approximation. The infl. vol is negligible wrt libor vol. so to have a raw price I could not take in cosideration vol of infl. for the moment.The inflation curve that I developed has the seasonality adj, but in my opinion is to verify if how sold us the bond has accounted the seasonality factors for building the forward inflation curve.Thxg.