Option Adjusted Spread

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Option Adjusted Spread

In fixed-income securities with embedded options, the yield spread between two securities calculated as if the embedded options do not exist. Different models calculate the OAS slightly differently, but the basic equation is rendered as:

OAS = yield spread - spread due to the options

This is important in complex derivatives such as mortgage-backed securities. See also: Black-Scholes Model.
References in periodicals archive ?
Our methodologies include the analysis of current spreads versus historical spreads, expected total returns in different interest rate environments, option adjusted spreads, and worst case performance analysis.
However, thanks to a 47 basis point rise in option adjusted spreads, their returns fell short of Treasuries by 2.
option adjusted transfer spreads, option adjusted spreads,