Z-Spread — yc_zspread • yieldcurves

Compute the Z-spread (zero-volatility spread) for a bond. The Z-spread is the constant spread added to each zero rate on the benchmark curve that makes the discounted cash flows equal the market price.

Usage

yc_zspread(price, coupon_rate, maturity, curve, face = 100, frequency = 2)

Arguments

price: Numeric. Market price of the bond.
coupon_rate: Numeric. Annual coupon rate as a decimal.
maturity: Numeric. Time to maturity in years.
curve: Either a yc_curve object or a list/data frame with components maturities and rates.
face: Numeric. Face value of the bond. Default is 100.
frequency: Integer. Coupon frequency per year: 1 for annual or 2 for semi-annual (default).

Value

A list with components zspread (the Z-spread as a decimal), price (the input price), and model_price (the price implied by the curve with the Z-spread applied).

Examples

# Create a benchmark curve
curve <- yc_curve(c(0.5, 1, 2, 5, 10), c(0.03, 0.035, 0.04, 0.042, 0.045))

# A bond priced below par (positive Z-spread)
yc_zspread(price = 95, coupon_rate = 0.04, maturity = 5,
           curve = curve, frequency = 2)
#> $zspread
#> [1] 0.01029722
#> 
#> $price
#> [1] 95
#> 
#> $model_price
#> [1] 95
#>