Zero Coupon Swap
Definition of 'Zero Coupon Swap'An exchange of income streams in which the stream of floating interest-rate payments is made periodically, as it would be in a plain vanilla swap, but the stream of fixed-rate payments is made as one lump-sum payment when the swap reaches maturity instead of periodically over the life of the swap. The amount of the fixed-rate payment is based on the swap's zero coupon rate. |
|
Investopedia explains 'Zero Coupon Swap'Variations of the zero coupon swap exist to meet different investment needs. A reverse zero-coupon swap pays the lump-sum payment when the contract is initiated, reducing credit risk for the pay-floating party. An exchangeable zero-coupon swap can use an embedded option to turn the lump-sum payment into a series of payments. It is also possible for the floating-rate payments to be paid as a lump sum in a zero-coupon swap. |
Related Definitions
Articles Of Interest
-
Credit Default Swaps: An Introduction
This derivative can help manage portfolio risk, but it isn't a simple vehicle. -
An Introduction To Swaps
Learn how these derivatives work and how companies can benefit from them. -
The Advantages Of Bond Swapping
This technique can add diversity to your portfolio and lower your taxes. Find out how. -
Credit Default Swaps: What Happens In A Credit Event?
The credit crisis of 2008 prompted important changes to the settlement of credit default swaps. -
How do companies benefit from interest rate and currency swaps?
An interest rate swap involves the exchange of cash flows between two parties based on interest payments for a particular principal amount. However, in an interest rate swap, the principal amount ... -
What is a debt/equity swap?
Occasionally, a company will need to undergo some financial restructuring to better position itself for long term success. One possible way to achieve this goal is to issue a debt/equity or an ... -
How can I use an "airbag swap"?
An airbag swap is an interest rate swap designed to provide a cushion against rising interest rates. The airbag swap originally was designed for insurance companies because their balance sheets ... -
6 Asset Allocation Strategies That Work
Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right. -
American Vs. European Options
These two options have many similar characteristics, but it's the differences that are important. -
Pay Attention To The Proxy Statement
Don't overlook this overview of a company's well-being.
Free Annual Reports