Zero-volatility spread

Z-spread The Z-spread or zero volatility spread calculates the yield spread of a corporate bond by taking a zero-coupon bond curve as benchmark. Conversely to other yield spreads, the Z-spread is constant. In fact, it is found as an iterative procedure, which is the yield spread required to get the equivalence between market price and the present value of all its cash flows. The Z-spread is given by Equation (8.2) ... 

The zero-volatility spread, also referred to as the Z-spread or static spread, is a measure of the spread that the investor would realize over the entire benchmark spot rate curve if the bond were held to maturity. Unlike the nominal spread, it is not a spread at one point on the yield curve. The Z-spread is the spread that will make the present value of the cash flows from the nongovernment bond, when discounted at the benchmark rate plus the spread, equal to the nongovernment bond s market price plus accrued interest. A trial-and-error procedure is used to compute the Z-spread. 

The problem is, what spread is assumed to change There are three measures that are commonly used for fixed-rate bonds nominal spread, zero-volatility spread, and option-adjusted spread. Each of these spread measures were defined earlier in this book. 

The zero-volatility or static spread is the spread that when added to the government spot rate curve will make the present value of the cash flows equal to the bond s price plus accrued interest. When spread is defined in this way, spread dnration is the approximate percentage change in price for a 100 basis point change in the zero-volatility spread holding the government spot rate curve constant. 

A sensible question arises How do you know whether a spread duration for a fixed-rate bond is a spread based on the nominal spread, zero-volatility spread, or the OAS The simple answer is you do not know You must ask the broker/dealer or vendor of the analytical system. To add further to the confusion surrounding spread duration, consider the term OAS duration that is referred to by some market participants. What does it mean On the one hand, it could mean simply the spread duration that we just described. On the other hand, many market participants use the term OAS duration interchangeably with the term effective duration. Once again, the only way to know what OAS is measuring is to ask the broker/dealer or vendor. 

If the liquid resting on a solid is volatile, it can distribute itself along the surface of the solid through the vapour thus Hardy6 found that only those acids and alcohols which have a sensible vapour pressure distribute themselves along the surface, from a drop in one spot, so as to lubricate it in any reasonable time. It does not appear to be necessary, for this kind of spreading to occur to some extent, that the contact angle should be zero it was found that the coefficient of friction of paraffin wax was... 

A systematic explanation of the spreading phenomena observed requires consideration of mechanisms which will account for the invariable advance of a primary film, and relate the presence of volatile impurities to the spreading of secondary films and the frequent development of a ridge at their leading edge, account for the distinct recession of some liquids from a boundary at which they exhibit a zero contact angle, and explain the upward transport of significant amounts of liquid in films a micron or more thick. 

Air extracted from spread coating ovens contains typically 500 mg/m plasticizer, which is present mostly as a condensate since the saturation concentration of common plasticizers in air is low. In those installations with filtration equipment, the average phthalate concentration in the air is reduced from 500 mg/m to below 20 mg/m . The use of incineration equipment to clean the exhaust air reduces the residual phthalate concentration to practically zero. The use of filters and incinerators on calendering and spread coating plants is steadily increasing due primarily to the need to reduce emissions of solvents and other volatile organic compoimds to the atmosphere. 

The observed power laws can be found theoretically by hydrodynamical calculations in the S = 0 case. For strictly positive values of S and volatile liquids, one might argue that the drop spreads on a preexisting liquid film and that the true value of S is zero. But the paradox remains in the case of nonvolatile liquids. Why is the dynamics of spreading independent of S ... 

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