Deflation floor

In a deflationary environment a conventional bond performs very well, while an inflation-linked bond gives negative returns. Some of inflation-linked bonds include deflation protection.In practice, in the event of deflation, the bondholder will receive at maturity the par value although the redemption value is less than 100. Therefore, the bondholder will obtain at least the par value. Note that the deflation floor applies to the redemption value only leaving coupon payments exposed to the deflation risk. 

Therefore, without considering the deflation floor, the value of an inflation-linked bond is equal to 4.83+93.02 = 97.85. 

The benefit of the deflation floor is assimilated to a European put option in which the payoff is given by Equation (6.19) ... 

Unlike some other linker markets, there is no minimum redemption floor of 100 in the event of deflation over the entire life of a bond. 

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