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 ?
Mortgage-to-debt option-adjusted spreads have widened recently and, as interest rates have risen, liquidations have slowed.
These option-adjusted spreads are then employed to compute the simulation model values in the next quarter (i.
5] In addition, the price-process model does not require the use of an arbitrary option-adjusted spread to make model values of callable securities fit market price data (Ho, 1997).
Pricing the option-adjusted spread of Brazilian Eurobonds.
The Yield Book database maintains coupon rate, credit rating, redemption schedules, prepayment history, and other indicative data for a large number of securities, together with daily prices, yields, option-adjusted spreads, effective durations and other calculated values for securities covering 30 countries.
Treasury-based hedges should be used more when option-adjusted spreads (OASs) on mortgages are high.
Far more precise results could be obtained by using state-of-the-art option-adjusted spread models, which have been widely favored by sophisticated money managers for several years.
An option-adjusted spread model is needed to accurately determine price elasticity relationships, over a broad range of interest rate scenarios, between different mortgage types(and coupons) so as to enable the construction of accurate consolidated exposure reports.
The indicators for each index range from market-based variables such as credit default swap spreads and option-adjusted spreads to survey-based indicators such as the Senior Loan Officer Survey and various other bank surveys.
Each chapter contains cutting-edge information for investors, traders, and other professionals involved in this market, including discussions of structuring mortgage products-such as agency CMOs and new types of mortgages-and an in-depth explanation of the concept of option-adjusted spreads and other analytical concepts used to assess relative value.
NEW YORK -- As the bond and CDS markets continue to converge, the analytical use of simple spreads to Treasuries or traditional option-adjusted spreads (OAS) is giving way to newer measures in an effort to better compare the two markets, according to Fitch Ratings.
Daily histories of prices, yields and option-adjusted spreads for corporate bonds on an individual holdings-basis are also now available, in addition to implied credit default spreads and default probabilities supplied by CreditGrades.