The zero rate is a particular type of interest rate that pertains to special type of lending/borrowing contracts represented in Deriscope by the tradable Zero Bond. In a Zero Bond one party receives a fixed amount of cash at some preagreed future time (maturity) from the other party. The related zero rate cannot be defined without the additional specification of the following 3 conventions, that define how the zero rate is calculated: '1) 'The Frequency that defines how often the rate generates interest income by being applied on the capital amount applicable at the time when the rate is applied. '2) 'The Simple Rate::Compounding that defines how the capital amount on which the rate is applied keeps changing after each rate application. '3) 'The DayCount that defines how the length of each time interval is calculated for the purpose of multiplying it with the zero rate in order to compute the ensuing interest amount.
For example, the so called 'continuously compounded 'zero rate for some maturity T is defined as the number r that satisfies: D = exp(-rτ), where D is the discount factor at time T and τ is the length of time until T in annual units calculated according to some given daycount convention.