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Option-Adjusted Spread |
Also found in: Wikipedia | 0.01 sec. |
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Option-adjusted spread (OAS) (1) The spread over an issuer's spot rate curve, developed as a measure of the yield spread that can be used to convert dollar differences between theoretical value and market prices. (2) The cost of the implied call embedded in an MBS, defined as additional basis-yield spread. When added to the base yield spread of an MBS without an operative call produces the option-adjusted spread. 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. Want to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit the webmaster's page for free fun content. |
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