Getting off the floor

Bankers are hopeful that the inflation options market will develop from its current limited state, where inflation floors are just about the only product. But pricing models may first need to become standardised

Inflation options have been around for at least 20 years in the form of floors embedded in inflation-linked government bonds. But despite the scope for broader use, a market has been slow to develop. Now, though, dealers are hopeful that the growth of other inflation products, particularly swaps (see page 31), will see options begin to establish themselves as a key tool for inflation market participants.

But serious challenges remain. Some end-users believe certain inflation exposures are best