Does anyone know the name of the swap I have outlined below:
let's say Notional principal = 100. You grow your notional principal each period by inflation, then:
Calculate interest payable each period as:
"Interest Rate Payable x Average (Opening Inflated Principal, Closing Inflated Principal).
Your interest rate may be fixed or floating, and you receive the converse.
Then calculate the portion of interest payable that you capitalise into the prinicipal, which is:
"Opening Inflated Principal x Inflation Rate x 0.5".
The "0.5" is whatever number you agree to with the counterparty, and you may agree to repay the accrued capitalised interest every 2 years say, but again the specific period is subject to negotiation with the counterparty.
The remainder of the interest payable is paid upfront of course.
- Calculate interest received as "Received Interest Rate x Un-inflated Principal", i.e. RIR x 100.
