Zero-volatility spread, Financial Management

Assignment Help:

The zero-volatility spread is a measure of the spread that the investor would realize over the entire Treasury spot rate curve if a mortgage-backed or asset-backed security is held to maturity. Unlike normal spread, zero-volatility spread, is not a spread of one point on the Treasury yield curve. Zero-volatility spread also known as Z-spread and the static spread, is the spread that will make the price of a security equal to the present value of the cash flows from the mortgage-backed and asset-backed security when discounted at the Treasury spot rate plus the spread.  In other words, each cash flow is discounted at the appropriate Treasury spot rate plus the Z-spread.  A trial and error method is used in determining the

zero-volatility spread. The difference between the zero-volatility spread and the normal spread depends on the maturity or average life of a structured product, i.e., larger  the maturity  of the security greater is the difference, and shorter the maturity lesser the difference between both the measures. The shape of the curve also determines the magnitude of the difference between both the spreads. The steeper the curve the greater is the difference.


Related Discussions:- Zero-volatility spread

Financial ratio , Ratio Calculation:   A 'Financial Ratio' is an ind...

Ratio Calculation:   A 'Financial Ratio' is an index that relates two accounting numbers and is obtained by dividing one number by the other. Various Ratios are - 1. L

Benefits of the proposed policy change, Q. Benefits of the proposed policy ...

Q. Benefits of the proposed policy change? Short-term sources of debt finance comprise overdrafts and short-term loans. An overdraft offers elasticity but since it is technical

Evaluate of risk-adjusted discount rate, Q. Evaluate of Risk-Adjusted Disco...

Q. Evaluate of Risk-Adjusted Discount Rate? Illustration: - From the following date state which project is preferable: Year Project A Proj

Define accumulated depreciation, What is accumulated depreciation? Depr...

What is accumulated depreciation? Depreciation is the allocation of an initial cost over time of asset. Whereas the term accumulated depreciation is the total of all the deprec

Calculate the annual interest , Reston, Inc., has asked your corporation, P...

Reston, Inc., has asked your corporation, Pruro, Inc., for financial assistance. As a long-time customer of Reston, your firm has decided to give that assistance. The question you

Hedge funds, Hedge Funds: Hedge Funds are investment partnerships that ...

Hedge Funds: Hedge Funds are investment partnerships that strive for above average returns through active portfolio management and whose primary compensation is a percentage of

Interest Rate Derivatives, Interest Rate Derivatives: India's first t...

Interest Rate Derivatives: India's first trading on interest rate derivatives began in the National Stock Exchange of India (NSE) in June 2003 with futures on 91-day treasury

What are three major sections of the statement of cash flow, What are the t...

What are the three major sections of the statement of cash flows? Cash flows from financing activities Cash flows from investing activities Cash flows from Operations

Approaches to financial management, mention the advantages and disadvantage...

mention the advantages and disadvantages of the traditional approach

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd