A type of inflation derivative; an inflation-indexed swap which has both cash flow legs paying out on maturity. This swap is based on an exchange of the total return on an inflation index (inflation-pegged income stream) for a compound fixed breakeven rate, over a specific period of time. It allows investors to hedge away a breakeven exposure to inflation rate.
The zero-coupon inflation swap is also known as a breakeven swap or a breakeven inflation swap or for short as a ZCIS.
Comments