Option-adjusted spread


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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.
References in periodicals archive ?
The option-adjusted spread helps investors compare a fixed-income security's cash flows to reference rates, while also valuing embedded options against general market volatility.
To achieve its goals, Sage creates a portfolio of credit and government bond ETFs that closely match the duration, yield to maturity, and option-adjusted spread of the liability benchmark.
Mubadala's bonds maturing 2021 were trading with an option-adjusted spread (OAS) at 237 basis points on Thursday, while the spread on the IPIC 2021 bond was at 282 basis points.
Davidson himself is known for developing prepayment and option-adjusted spread models, working at Merrill Lynch before going solo.
Introduction to option-adjusted spread analysis, 3d rev.
Traditional option-adjusted spread (OAS) technology is not needed.
16) Examples of valuation models include the present value of expected future cash flows, option-pricing models, matrix pricing, option-adjusted spread models, and fundamental analysis.
The statement goes on to explain that quoted market prices in active markets are superior to other valuation techniques, including the present value of future cash flows, (discounted in this step at a rate commensurate with the risk involved), option-pricing models, matrix pricing, option-adjusted spread models, and fundamental analysis.
High-quality corporate bond credit spreads, as measured by the Barclays Capital Long Credit A+ option-adjusted spread, ended the quarter approximately 7 bps tighter.
A possible solution to this conundrum is to capitalize servicing based on an option-adjusted spread (OAS) basis.
Examples of valuation techniques include the present value of estimated expected future cash flows using a discount rate commensurate with the risks involved, option-pricing models, matrix pricing, option-adjusted spread models, and fundamental analysis.
They range from a fairly simple expected return calculation based on a limited number of up-and-down interest rate scenarios, to option-adjusted spread (OAS) analyses that look at hundreds of randomly generated interest rate paths to calculate value.