Zero Coupon Yield Cure ?
The Zero Coupon Yield Curve (also called the Spot Curve) is a relationship between maturity and interest rates. It differs from a normal yield curve by the fact that it is not the YTM of coupon bearing securities, which gets plotted. Represented against time are the yields on zero coupon instruments across maturities. The benefit of having zero coupon yields (or spot yields) is that the deficiencies of the YTM approach (See Yield to Maturity) is removed. However, zero coupon bonds are generally not available across the entire spectrum of time and hence statistical estimation processes are used. The zero coupon yield curve is useful in valuation of even coupon bearing securities and can be extended to other risk classes as well after adjusting for the spreads.
The Zero Coupon Yield Curve (also called the Spot Curve) is a association between maturity and interest rates. It differs from a normal yield curve by the fact that it is not the YTM of coupon bearing securities, which gets plotted. Represented against time are the yields on zero coupon instruments across maturities. The benefit of having zero coupon yields (or spot yields) is that the deficiency of the YTM approach (See Yield to Maturity) is removed. However zero coupon bonds are generally not available across the entire spectrum of time and hence statistical opinion processes are used. The zero coupon yield curve is useful in valuation of even coupon bearing securities and can be extended to other risk classes as well after adjusting for the spreads. It is also an important input for robust measures of Value at Risk (VaR).
