Zero-Volatility Spread Law and Legal Definition
Zero-volatility spread refers to the constant spread that will make the price of a security equal to the present value of its cash flows when added to the yield at each point on the spot rate Treasury curve where a cash flow is received. It is a tool used in the analysis of an asset swap that uses the zero-coupon yield curve to calculate the spread. It is the number of basis points that would have to be added to the spot yield curve so that the bond's discounted cash flows equal the bond's present value. Each cash flow is discounted using its maturity and the spot rate for that maturity term, so each cash flow has its own zero-coupon rate. Zero-volatility spread is also known as Z-spread or static spread.