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

Explain the term phishing, QUESTION (a) (i) Describe briefly two potent...

QUESTION (a) (i) Describe briefly two potential E-Banking risks that may have an adverse impact on banks. (ii) Outline some measures to control these two risks. (b) Outli

Show the projected balance sheet method, Q. Show the Projected Balance Shee...

Q. Show the Projected Balance Sheet Method? Projected Balance Sheet Method: - Under this process an approximate is made of assets and liabilities for a future date and a projec

Audit opinion, Clean Opinion - AUDIT opinion not qualified for any material...

Clean Opinion - AUDIT opinion not qualified for any material scope restrictions nor departures from GENERALLY ACCEPTED ACCOUNTING PRINCIPLES (GAAP). Also called UNQUALIFIED OPINION

Explain the significance of financial analysis, Question 1 What are the li...

Question 1 What are the limitations of management accounting? Question 2 Explain the significance of financial analysis Question 3 What are the advantages of the value a

CAPM, Techiniques of capm Effects of capm

Techiniques of capm Effects of capm

Describe about comfort letter, Q. Describe about Comfort Letter? Comfor...

Q. Describe about Comfort Letter? Comfort Letter - Letter provided by a company's independent public accountant to an underwriter when underwriter has a DUE DILIGENCE responsib

Liabilities, Liabilities The company must take into account the nature ...

Liabilities The company must take into account the nature of its liabilities as well as its solvency position. Cash Flows: Besides the investment yields, money flows as paid

Components of a callable bond, A callable bond is the sale of a call ...

A callable bond is the sale of a call option by the investor to the issuer as it allows the issuer to repurchase the bond from the time it becomes callable until

Financial portfolio of a company, A. Initial evaluation Comment on the...

A. Initial evaluation Comment on the structure of the attached portfolio, and on the financial risks facing Copper Based plc (CB), making use of what you know about how a port

Explain about pink book, Q. Explain about pink book? This shows the var...

Q. Explain about pink book? This shows the various sub heads under which the lum sum amount sanctioned by allotment is to be spent and this indicates the works for which the al

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