Zero-Volatility Spread - Z-spread


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".

BREAKING DOWN '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.

  1. Spot Rate

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

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

    A yield curve constructed using Treasury spot rates rather than ...
  4. Yield Curve

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

    The current price at which a particular security can be bought ...
  6. Maturity

    The period of time for which a financial instrument remains outstanding. ...
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