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ZCS


It stands for zero-coupon swap; an inflation-indexed swap whereby a single fixed payment is due at the unique (final) payment date for the fixed rate leg in exchange for a series of usual floating payments at successive reset dates. Differently stated, the zero-coupon swap is an interest rate swap in which the fixed rate leg is based on a zero-coupon bond. The bondholder would be required to make that final payment at maturity. Mismatching of payment on each leg exposes one counterparty to a substantial default risk.



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Derivatives have increasingly become very important tools in finance over the last three decades. Many different types of derivatives are now traded actively on ...
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