Option Adjusted Spread


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Related to Option Adjusted Spread: Effective duration

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 ?
NEW YORK -- NEW YORK, May 8 /PRNewswire/ -- Banc of America Securities (BAS) and Standard & Poor's Risk Solutions, a leading provider of custom credit risk services, models, data and training, today announced that they intend to collaborate on further development of a new suite of quantitative credit risk analytic tools based on Credit Option Adjusted Spread (COAS), a forward- looking model that draws upon more market observables than any other model currently in use to assess credit risk.
Fixed-Income Analytics-Option Adjusted Spread: Mellon Trust announced the availability of Option Adjusted Spread analytics for fixed-income portfolios and securities.
For example, Atlantis Software estimates that running on a 32- processor CRAY SUPERSERVER 6400, its APA software can calculate the option adjusted spread (OAS) over 1,000 paths for a CMO bond in 0.