Option Adjusted Spread

(redirected from Option-Adjusted Spreads)
Also found in: Wikipedia.

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 ?
From an analysis of the historical relationships between the yield curve and valuations on four major asset classes, Fridson estimates that if the 10-year Treasury yield rises to 4% while short-term interest rates remain unchanged, the option-adjusted spreads on high-yield bonds and investment grade corporates will widen to levels last seen in September 2009.
Mortgage-to-debt option-adjusted spreads have widened recently and, as interest rates have risen, liquidations have slowed.
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.
Shah began his MBS career at Morgan Stanley as a research specialist in non-agency RMBS and ARMs, where his work included early implementation of libor-based option-adjusted spreads for ABS/MBS.
Treasury-based hedges should be used more when option-adjusted spreads (OASs) on mortgages are high.
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.
The Risk-to-Price methodology models the behavior of option-adjusted spreads in conjunction with the probability of default and the volatility of the bond.
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.
The UPB of the company's retained portfolio grew nine percent in 2005, to $710 billion, but declined to $705 billion as of February 28, 2006, as mortgage-to-debt option-adjusted spreads tightened somewhat in the first two months of the year.
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.
The company expects to report that, during the third quarter of 2005, it experienced a decline in the fair value of net assets attributable to common stockholders, before capital transactions, primarily due to a widening in mortgage-to-debt option-adjusted spreads, which had the effect of decreasing the fair value of the company's retained portfolio assets relative to its outstanding debt securities.
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.