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

What are the main flaws of the profit maximisation criterion, What are the ...

What are the main flaws of the profit maximisation criterion The main technical flaws of this criterion are i) ambiguity, ii) quality of benefits and iii) timing of be

Characteristics - nature of financial management, Characteristics - Nature ...

Characteristics - Nature of Financial Management: 1) Financial Planning and Control: Finance is a base for all the business activities. Business Activities should be not on

Which type of insurance company generally takes risks, Which type of insura...

Which type of insurance company generally takes on the greater risks: a life insurance company or a property and casualty insurance company? The risks protected against by cas

Statement showing working capital requirement, Current Assets:- Stoc...

Current Assets:- Stock of Raw-Materials :- [(Cost of yearly consumption Of raw material)*{ (Average Inventory holding period (weeks/months))}/(52 weeks / 12 months)]=

Explain about net working capital concept, Q. Explain about Net Working Cap...

Q. Explain about Net Working Capital Concept? Net Working Capital Concept: - Net working capital demotes to the difference among current assets and current liabilities. Current

Company''s stock price, A company is expected to pay a dividend of D1 = $1....

A company is expected to pay a dividend of D1 = $1.25 per share at the last of the year, and that dividend is expected to grow at a constant rate of 6.00% per year in the future.

Settlement dates, What is Settlement date? Please provide me report on Sett...

What is Settlement date? Please provide me report on Settlement date. It is about 2000 words count report on topic Settlement date.

Commercial paper, What is Commercial Paper? Please provide me report on Est...

What is Commercial Paper? Please provide me report on Estimation of Commercial Paper. It is about 2000 words count report on topic Commercial Paper.

What are assumptions of walters dividend model, Q. What are assumptions of ...

Q. What are assumptions of Walters dividend model? 1. Constant Return and Cost of Capital: - The Walter' model presume that the firm's rate of return and its cost of capital ar

CAPM, Techiniques of capm Effects of capm

Techiniques of capm Effects of capm

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