ZERO COST OPTION
Any option strategy that involves financing an option purchase by the simultaneous sale of another option so that paid and received premiums exactly offset one another.
See also
collar,
cylinder,
participating forward,
ratio spread
ZERO COUPON BOND
A debt instrument issued at below par value. The bond pays no coupons; instead, it is redeemed at face value at maturity.
ZERO COUPON SWAP
An off-market swap in which either or both of the counterparties makes one payment at maturity. Usually it is the fixed-rate payments only that are deferred. The party not receiving payment until maturity incurs a greater credit risk than it would with an ordinary swap. The swap is advantageous for a company that will not receive payment for a project until it is completed or to hedge zero coupon liabilities, such as zero coupon bonds.
ZERO EXERCISE PRICe OPTION (ZEPO)
A low exercise price option whose strike price is exactly zero.