Along with the deepening of our country population aging degree, the expansion of the pension gap, and the inflation upward pressure, how pension fund invests to realize the value has become an important subject relations of the national development and social stability. Inflation-indexed bonds are viewed as an important tool to resist inflation risk, but there are no inflation-indexed bonds in China. Under this background, a two factor continuous time pricing model characterized by two fundamental variables is developed:the instantaneous inflation rate i(t) and the instantaneous nominal risk-free interest rate r(t), both follow the standard Vasicek model. Such a starting point differences this paper from previous related literature and is motivated by the economic reason that inflation rate and interest rate can both become negative. Based on these assumptions, the theoretical explicit solution of inflation-indexed bonds price under the risk neutral measure is got, and the numerical simulation is used to analyze the resistant effect of inflation indexed bonds on inflation, and the effect of the nominal interest rate, inflation rate, volatility and maturities on inflation-indexed bonds prices, using rolling regression and seemingly unrelated regression(SUR) method to estimate relevant parameters. The data window ranges from January 4, 2002 to January 4, 2016, a total of 5114 daily data. Research shows that the inflation-indexed bonds prices are positively with inflation rate and volatility, negatively with the interest rate, and the effect of volatility is greater than inflation rate and more than the interest rate. If the expected rate of inflation is higher than interest rates, inflation-indexed bonds will be issued at a premium, and the longer the maturities, the higher the prices. This paper makes it possible to price asset under the condition of negative inflation rate and interest rate, provides the possibility for the diversified investments of pension fund to avoid inflation risk and increase the value, and also provides the basis for the countries to promote the innovation of financial derivatives.
LIU Yu-lin, YIN Xing-min, LI Zhi-hui
. Pricing Chinese Inflation-indexed Bonds in the Context of Pension Entering the Capital Market[J]. Chinese Journal of Management Science, 2018
, 26(11)
: 94
-104
.
DOI: 10.16381/j.cnki.issn1003-207x.2018.11.010
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