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

Pay back method, Ask I have included a simple capital investment problem wh...

Ask I have included a simple capital investment problem which is in Course Documents. We are going to use the same numbers for several classes and look at some of the ways that cap

State the meaning ofunlimited profit sharing, State the meaning ofUnlimited...

State the meaning ofUnlimited profit sharing Unlimited profit sharing means that equity shares have an unlimited potential for dividend payments and price appreciation. Which i

Sensitivity analysis, A division of Saron plc is considering introducing a ...

A division of Saron plc is considering introducing a new product.  The product is the result of work undertaken by the division's research and development department - the expendit

Define accounting and financial terms, What do you understand by financial ...

What do you understand by financial viability of the organization? 2 : Define Following accounting and financial terms: Asset Liability Equity Income Expense

How would the market price of a bond be affected, All other things held con...

All other things held constant, how would the market price of a bond be affected if coupon interest payments were made semiannually instead of annually? The majority of bonds i

Organization and management pattern of uti, Organization and Management Pat...

Organization and Management Pattern of UTI UTI has a full-time Chairman with an Executive Trustee reporting to him. The Executive Trustee looks after the Corporate Office, Zona

Leverages, Leverages 'Leverages' are of prime importance in the analysi...

Leverages 'Leverages' are of prime importance in the analysis of a companies' risk. They give a good picture of the business, financial and the overall risk of a company's oper

Geographical classification of mutual funds , Geographical Classification o...

Geographical Classification of Mutual Funds : Nations' boundaries provide territorial restrictions on the sale and purchase of mutual fund units or shares as is the case in com

Compute the expected stock price, 1. Using ratio analysis, compare your fif...

1. Using ratio analysis, compare your fifth year to the current year and discuss. 2. Compute the expected stock price at the end of the fifth year. Assume your stockholders hav

find the worst case npv and probability, Question 1 What are the tota...

Question 1 What are the total cash inflows for project A? Discount rate (%)                      NPV of A (Rs.) 0

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