Zero-Volatility Spread - Z-spread

AAA

DEFINITION of 'Zero-Volatility Spread - Z-spread'

The constant spread that will make the price of a security equal to the present value of its cash flows when added to the yield at each point on the spot rate Treasury curve where a cash flow is received . In other words, each cash flow is discounted at the appropriate Treasury spot rate plus the Z-spread.


The Z-spread is also known as a "static spread".

INVESTOPEDIA EXPLAINS 'Zero-Volatility Spread - Z-spread'

A Z-spread calculation is different than a nominal spread calculation. A nominal spread calculation uses one point on the Treasury yield curve (not the spot rate Treasury yield curve) to determine the spread at a single point that will equal the present value of the security's cash flows to its price.

RELATED TERMS
  1. Spot Rate

    The price that is quoted for immediate settlement on a commodity, ...
  2. Yield Curve

    A line that plots the interest rates, at a set point in time, ...
  3. Spot Price

    The current price at which a particular security can be bought ...
  4. Spread

    1. The difference between the bid and the ask price of a security ...
  5. Spot Rate Treasury Curve

    A yield curve constructed using Treasury spot rates rather than ...
  6. Surrender Period

    The amount of time an investor must wait until he or she can ...
Related Articles
  1. The Impact Of An Inverted Yield Curve
    Bonds & Fixed Income

    The Impact Of An Inverted Yield Curve

  2. Get A Short-Term Advantage In The Money ...
    Personal Finance

    Get A Short-Term Advantage In The Money ...

  3. Why should I keep records on my tax-exempt ...
    Taxes

    Why should I keep records on my tax-exempt ...

  4. What determines the price of a bond ...
    Bonds & Fixed Income

    What determines the price of a bond ...

Hot Definitions
  1. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  2. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  3. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
  4. Parity Price

    When the price of an asset is directly linked to another price. Examples of parity price are: 1. Convertibles - the price ...
  5. Earnings Multiplier

    An adjustment made to a company's P/E ratio that takes into account current interest rates. The earnings multiplier is used ...
  6. Macroeconomics

    The field of economics that studies the behavior of the aggregate economy. Macroeconomics examines economy-wide phenomena ...
Trading Center