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Miscellaneous Assets

  • Zura Kakushadze
  • Juan Andrés Serur
Chapter

Abstract

This chapter discusses trading strategies for miscellaneous more “exotic” assets, including detailed mathematical descriptions, such as inflation hedging using both zero-coupon and year-on-year inflation swaps, TIPS-Treasury arbitrage, which amounts to replicating the cash flows of a Treasury bond using a lower-cost portfolio comprised of Treasury Inflation-Protected Securities (TIPS), inflation swaps, and STRIPS (“Separate Trading of Registered Interest and Principal of Securities”), hedging weather-affected demand risk using futures and options contracts on synthetic weather indexes such as those based on the cooling-degree-days and heating-degree-days, and energy spreads such as the spark spread between the wholesale price of electricity and the cost of natural gas required to produce it by a gas-fired power plant.

Keywords

Inflation hedging Annual inflation Cumulative inflation Inflation index Breakeven rate Zero-coupon inflation swaps Year-on-year inflation swaps TIPS-Treasury arbitrage Treasury bond Treasury Inflation-Protected Securities (TIPS) STRIPS (Separate Trading of Registered Interest and Principal of Securities) Demand risk Synthetic indexes Cooling-degree-days (CDD) Heating-degree-days (HDD) Energy spreads Spark spread Consumer Price Index (CPI) Weather index Weather derivative Electricity futures Heat rate Fuel futures Synthetic index Discount factor 

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Copyright information

© The Author(s) 2018

Authors and Affiliations

  • Zura Kakushadze
    • 1
  • Juan Andrés Serur
    • 2
  1. 1.Quantigic Solutions LLCStamfordUSA
  2. 2.Universidad del CEMABuenos AiresArgentina

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