Inflation derivative is a subclass of derivative that is used by people to mitigate the issues of potentially large degrees of inflation. The most related type of inflation derivative is swaps, by which counterparty’s cash flows are related to a price index as well as the other counterparty is related to a conventional predetermined or floating earnings. In finance, inflation derivative refers to exchange traded derivative that is used to move inflation risk from one counterparty to another.
Inflation Derivative
