Inflation_Adjusted_Rate_Swap

The *Inflation Adjusted Rate Swap* is a financial contract where, at the end of each accrual period, one party - the inflation receiver - pays a non-inflation linked coupon, for example libor + spread and receives a payment *Inf*, based on a rate that is linked to a specific inflation index, from the other party - the inflation payer.

Formally:

*Inf = NQ(t)rΔt*

where *N* is the swap notional, *r* is a constant rate, *Δt* is the length of the accrual period expressed in number of years and

*Q(t) = I(t-lag)/I0* represents the inflation index *I* at time *t-lag* in units of the so called base value *I0*, where *lag* is a contractually specified time lag.