Inflation Options - liquidity of market, players, more information?

ForTheDream's picture
Rank: Baboon | 139

Hey guys, does anyone know anything about Inflation Options? Are these actively traded? What is the liquidity compares to Inflation Swaps (EUR or USD) and to Swaptions (again, EUR or USD)?

In particular, I am asking these questions on the European inflation options market.

Thanks a lot for your help!


Comments (11)

Nov 3, 2018

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Hope that helps.

Nov 6, 2018

Any insights?

Nov 6, 2018

lol...inflation could drive a truck thru those markets...they are as wide as they your eyes out and suck your brains dry. thats what inflation liquidity is like.

just google're welcome

Nov 12, 2018

really? even tips?

Nov 12, 2018

yes, even TIPS

just google're welcome

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Nov 24, 2018

Understood, thank you!

Nov 21, 2018

You have to ask yourself. Where is the demand for inflation volatility coming from? Maybe in structured note issuance of CPI floaters there are low strike floors but other than that, maybe some hedge funds. Inflation is illiquid

Nov 25, 2018

Yep, agreed... Do you trade rates/rates vol?

Dec 9, 2018

rates structuring

Dec 11, 2018

example of what i mean by "wide spreads" in inflation products

5mm notional structured note, with a very simple structure. If total annual CPI greater than x%, note pays excess CPI above x% + 1yr libor, else note just pays 1yr libor. So, kind of like a TIPS or simple inflation linked bond...but with a boundary.

Back then the 1yr libor was around 1% but with QE, the market feared an inflation spike (that never came), hence paying an absurd fee for this note.

Trading desk took ~500k fee to sell that structured note...and i think they took another absurd fee to unwind it when it became clear that inflation would not spike and they didn't want the note anymore.

just google're welcome

Dec 12, 2018