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Inflation Models with Correlation and Skew
Orcan Ogetbil, Bernhard Hientzsch
https://arxiv.org/abs/2405.05101 https://arxiv.org/pdf/2…

Inflation Models with Correlation and Skew
We formulate a forward inflation index model with multi-factor volatility structure featuring a parametric form that allows calibration to correlations between indices of different tenors observed in the market. Assuming the nominal interest rate follows a single factor Gaussian short rate model, we present analytical prices for zero-coupon and year-on-year swaps, caps, and floors. The same method applies to any interest rate model for which one can compute the zero-coupon bond prices and measu…