The present paper addresses the problem of valuing contingent claims on the term structure in asingle good economy under uncertain inflation. In the context of arbitrage-free valuation, a
simple diffusion model for pricing inflation-indexed securities is proposed. A martingale
characterization of nominal and real prices is given and a stochastic generalization of the
Fisher equation is provided. An example of two-factor model which can be used to value
inflation-linked securities in practical applications, is also discussed.
JEL classification numbers: G00, G10, G30.
Keywords: Term structure of interest rates, Fisher equation, HJM-methodology,
Inflation-linked securities.
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