Inflation volatility

Inflates of aluminum, gallium and boron, which are readily available by the reaction of the corresponding chlorides with triflic acid, are effective Friedel-Crafts catalysts for alkylation and acylation of aromatic compounds [119, 120] Thus alkylation of toluene with various alkyl halides in the presence of these catalysts proceeds rapidly at room temperature 111 methylene chloride or ni-tromethane Favorable properties of the Inflates in comparison with the correspond 1 ng fluorides or chlorides are considerably decreased volatility and higher catalytic activity [120]... 

A common example of a plasticized polymer is poly(vinyl chloride). The common atactic form has a Tg of about 80 °C, well above room temperature. Without a plasticizer, vinyl is stiff and brittle. Dibutyl phthalate (see the structure at left) is added to the polymer to lower its glass transition temperature to about 0 °C. This plasticized material is the flexible, somewhat stretchy film we think of as vinyl raincoats, shoes, and even inflatable boats. Dibutyl phthalate is slightly volatile, however, and it gradually evaporates. The soft, plasticized vinyl gradually loses its plasticizer and becomes hard and brittle. 

The political situation within OPEC member countries is complicated and dynamic. Price shocks caused by political unrest in oil-exporting countries have had severe economic effects on the global economy, including losses in gross domestic product (GDP) and increases in inflation and unemployment. Oil market stability concerns are rooted both in political volatility and infrastructure insecurity. Further uncertainty arises from the entry of new suppliers, especially Russia, into the market and their cooperation, or lack thereof, with OPEC. In terms of supply security, the hub-and-spoke oil transportation system in both importing and exporting countries remains vulnerable to attacks. Some suggest a... 

From market observation we know that index-linked bonds can experience considerable volatility in prices, similar to conventional bonds, and therefore, there is an element of volatility in the real yield return of these bonds. Traditional economic theory states that the level of real interest rates is cmistant however, in practice they do vary over time. In addition, there are liquidity and supply and demand factors that affect the market prices of index-linked bonds. In this chapter, we present analytical techniques that can be applied to index-linked bonds, the duration and volatility of index-linked bonds and the concept of the real interest rate term structure. Moreover, we show the valuation of inflation-linked bonds with different cash flow structures and embedded options. 

No thumbnail sketch of the UK linker market s early days would be complete without a mention of the one-off innovation of an index-linked convertible gilt, nicknamed the Maggie Mays. The 2% Index-Linked 1999 was convertible into a nominal bond (10.25% 1999) at three future conversion dates. At a time when inflation remained volatile, and with the term to option expiry spanning a general election whose outcome was uncertain, seldom has so much optionality been sold so cheaply. The bonds were all (or almost all) converted. 

The presence of convexity means that both our forward bond curves understate true expectations of the future paths of nominal and real short-term rates. However, the value placed on convexity is a function of volatility, which is much greater in nominals than in linkers. Therefore, an implied path of future inflation derived in this way will understate true inflationary expectations because of convexity, if there are no other influences, such as the risk premium. 

Convexity differences between nominals and linkers create a systematic bias in break-even inflation, which is itself hard to quantify reliably (for instance, we have little objective current market-based information about prospective long-term real yield volatility). This makes the isolation of the risk premium even more difficult, if that s possible. The purpose of all of this is not to discourage the investigation of the risk premium, but rather to raise awareness of some important influences that need to be considered before you decide to begin your quest. 

However, when holding linkers in a performance-based portfolio, rather than as a passively matched investment, short-time horizons become paramount. Real yields on inflation-linked bonds do change, creating short-term volatility in their real and nominal returns. 

As we have said already, trading in nominal space has its analogue in real space. So there are directional trades, real yield curve trades, and anomaly (or relative value ) trades between issues. There are also trades between the real and nominal markets, in inflation space — buying and selling break-even inflation, and expressing views on the term structure of break-even inflation. Exhibits 8.17 and 8.18 show histories of real yields and break-even inflation, respectively, for the three main European inflation-linked markets, while Exhibit 8.19 highlights the volatility in the UK s real yield and break-even inflation curves. 

Investors who perform break-even inflation trades may choose to weight them for expected differences in nominal and real yield volatility, or beta-weight them. Cross-market trades are also popular—selling break-even inflation in one market, and buying it in another, in order to express a view on future inflation differences between two economies. And market participants quickly become aware of seasonality in (unadjusted) CPI linking indices, trading into good carry months and out of bad carry months. ... 

The problem of energy price volatility can be resolved by dividing the utility price into separate terms, each of them being a product of a certain coefficient and the price parameter [34]. The first term reflects the conventional inflation rate while the second one represents the contribution from the fuel price ... 

Currency fluctuations, inflation, deflation, forecast availability, market volatility... 

Table 24.8 compares the factors involved in total costs for these various methods of generating electricity. The construction costs are the most uncertain, or have the potential for the greatest variation, primarily because of the serious inflation that has occurred with construction material prices in the last two years. As for fuel costs, the most volatile are the natural gas costs for the GTCC plants. Construction costs are likely to vary because of site differences, regulatory approval delays, weather abnormalities, and legal challenges during construction. 

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