A market consistent calibration of the Jarrow-Yildirim model

For some years now, financial institutions have been involved in several pricing and market consistent valuations for their assets and liabilities. In this regard, risk-neutral models have become more and more popular both in the banking and insurance business. The Jarrow-Yildirim model is the most famous risk-neutral model for inflation and it is the main reference technique adopted in the inflation market. At the same time, this model considers a one-factor process for the nominal short rate, real short rate and consumer price index. In this paper, we present a market consistent calibration of the Jarrow-Yildirim model on Euro market data, such as year-on-year inflation-indexed swaps and inflation-indexed caps.