Glossary: terms starting with Z
4 terms from z-score to Zero-coupon bond, briefly explained and with a source where possible. All terms from A to Z
- z-score (z-value, Standard score)
The distance of a value from its mean in standard deviations: (value − mean) / standard deviation. In pairs trading it measures how far a pair's spread is from equilibrium; common entry thresholds are ±2.
Example: A spread 0.05 above its mean with a standard deviation of 0.02: z = 0.05 / 0.02 = 2.5.
More: Pairs trading and statistical arbitrage: idea, methods, research · Methodology: Long/short and statistical arbitrage: methodology
- Z-spread (Zero-volatility spread, I-spread, G-spread)
Constant spread over all spot rates of a reference curve, usually the swap curve, at which the discounted payments of a bond exactly equal its market price. More accurate than the I-spread (yield minus swap rate), because it takes the shape of the curve into account.
Source: O'Kane and Sen (2005)
More: Bond math: calculating price, yield, duration, convexity and spreads
- Zero-beta CAPM
A variant of the CAPM without unlimited borrowing at the safe rate. The risk-free rate is replaced by the return of a portfolio with no market risk; the security market line becomes flatter.
Source: Black (1972)
More: CAPM: the capital asset pricing model and the security market line
- Zero-coupon bond (Zero, Zero bond)
Bond without regular interest payments that is issued below face value and redeemed at face value. Its duration equals its remaining maturity; its yields are called spot or zero-coupon rates.
Brief, simplified explanations; not investment or tax advice.