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What are the other uses that the ZCYC can be put to, besides valuation of fixed income, default-free instruments?

April 26, 2017default-free fixed income instruments uses valuation zcyc

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What are the other uses that the ZCYC can be put to, besides valuation of fixed income, default-free instruments?

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The uses that an estimate of the term structure can be put to are immense. Once an estimate of the term structure based on default-free government securities is obtained, it can be used to price all non-sovereign fixed income instruments after adding an appropriate credit spread. It can be used to value government securities that do not trade on a given day, or to provide default-free valuations for corporate bonds. Estimates of the ZCYC at regular intervals over a period of time provides us with a time-series of the interest rate structure in the economy, which can be used to analyse the extent of impact of monetary policy. This also forms an input for VaR systems for fixed income systems and portfolios.