Does anyone know the name of the swap I have outlined below:
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let's say Notional principal = 100. You grow your notional principal each period by inflation, then:
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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.
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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.
