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Improving the Jarrow-Yildirim inflation model

February 5, 2017

A few years ago I came up with a useful improvement to the Jarrow-Yilidirm inflation model: let’s diffuse the inflation curve rather than the real-yield curve.

It turns out that this gives the modern inflation derivatives trader a much better risk management tool.

In the attached paper I give the details. I wrote it up back in 2013 and never got around to publishing it. It happens that I was talking to someone about this just the other day and it occurred to me that I should get it out there. Enjoy!

Improving the JY inflation model

Introduction

December 29, 2011

There are so so many books on finance and financial mathematics, but not one that gives you a real sense of the terminology, techniques and general knowledge you will need to learn to become successful in fixed-income financial mathematics and trading.

This blog aims to cover topics of direct interest and directly applicable to anyone working on or alongside a fixed-income trading floor.

And for the generally inquisitive mind there are also scatterings from other topics of interest like mathematics, probability theory, computing, languages, economics, education, art & design.

As a starting suggestion, have a look at:

How to calculate option prices in your head

How to understand fixed-income trader jargon

A fast-moving introduction to probability theory

Everything you need to know about swap spreads

A non-technical description of the risk-neutral measure

Ito product and quotient rules in trader speak

Why does the yield curve slope upwards?

Intuition for the forward-FX equation

Please feel free to ask questions or post suggestions via the comments feature at the bottom of each post.

Or if that sounds too scary, just give me a Like with the button.