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Abstract: 

The International Swaps and Derivatives Association has issued 2005 ISDA Inflation Derivatives Definitions.1 The Definitions describe the major global consumer price indices and provide fallback provisions in the event of a delay or disruption in the publication of an index. The fallbacks generally reference actions taken under a related inflation-linked bond in the event of a delay or cessation of publication. Where there is no related bond, a formula is provided to calculate the missing index level. Where an index has ceased to publish, a methodology is provided for a calculation agent to determine the appropriate successor index. The purpose of the definitions is to provide “a mechanism that mirrors the behavior of the underlying inflation-linked bond and by removing any potential mismatch in market price.”2 ISDA felt that providing definitions in the area had become crucial given the present size of the market, which it estimates to have currently around $98 billion in notional outstanding volume.

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