Fixed number of basis points that would be added to the gilt yield curve at all durations so that the present value of a bond’s future payments equals its market price. Z-spread is a measure of a bond’s credit risk. Therefore, it will be zero for gilts and high for low quality corporate debt. (See also nominal spread, option-adjusted spread.)

Zero cost
Simultaneous purchase and sale of options on the same underlying security for the same period, with the same premium, but at different strike prices. Hence, instruments such as zero cost collars (see collar hedge) can be engineered.

Zero coupon bond
Bond that pays no coupons. It is sold at a discount to its face value (assuming interest rates are positive) and matures at its face value after a specified term. (See also coupon.)

Zero coupon yield curve
Graphic representation of the market yields for zero coupon securities plotted against the maturity of those securities.

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