A CMO tranche that resembles a Zero Coupon Bond and ordinarily has neither the first, nor the last claim on the CMO’s underlying cash flows and asset value. Hence, the Z-Bond has significant Credit Risk and Market Risk .

ZENS

Zero-coupon exchangeable notes. Equity-linked notes that pay at maturity the greater of 100% of the appreciated value of original principal invested in stock or the original principal amount. Any time before maturity, the bondholders can exchange the bonds for 95% of the appreciated value of the corresponding stock. The bondholders pay for their embedded options by accepting a lower coupon plus quarterly dividend payments.

ZEPO

A Zero Exercise Price Option.

Zero Cost Collar

Aka “Costless Collar”. A howlingly funny misnomer. “Hidden-cost Collar” would be more accurate. Think about it. A dealer won’t do a transaction for you if it doesn’t cost you something, because his revenue is your transaction cost. The purchase of a put option financed by the sale of a call.

Zero Coupon Bond

A bond that pays no coupon, just par at maturity.

Zero Exercise Price Option

A European Call Option with strike price of zero. The owner will certainly exercise it, so it is equivalent to owning the underlying asset without receiving the cash flow (dividends or interest) through expiration.

Zero Gain Collar

A Costless Collar consisting of a short Call and long Put, where the short Call’s strike is ATM. Hence, when owned in combination with a long position in the underlying, the Zero Gain Collar gives up all the underlying’s upside gain, and the combined position can never show a profit.

Zeta

Definition: The market value of an option, less its model value, using the ATM implied vol for the same expiration.

Application: Zeta is a measure of the importance of using the volatility smile, rather than only the ATM volatility.

This *financial glossary* is designed to help you understand some of the more common investment and *financial* terms you may encounter.