臺大管理論叢 NTU Management Review VOL.29 NO.2

Effect of Inflation on the Cost of Inflation-Linked Annuities Considering Stochastic Interest Rate and Inflation Rate Models 50 Suppose that the following dynamic processes of nominal forward rates, real forward rates, nominal zero-coupon bonds, real zero-coupon bonds, and inflation index are as shown in Equations (2) - (6). . (2) . (3) . (4) . (5) . (6) From the cash flows in Figure 1, we can determine a fair price for the inflation-linked annuities under a forward probability measure at time t 0 , as shown in Equation (7). (7) .