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Option-adjusted spread (OAS) is the yield spread which has to be added to a benchmark yield curve to discount a security's payments to match its market price, using a dynamic pricing model that accounts for embedded options. OAS is hence model-dependent.
The Z-spread of a bond is the number of basis points (bp, or 0.01%) that one needs to add to the Treasury yield curve (or technically to Treasury forward rates) so that the Net present value of the bond cash flows (using the adjusted yield curve) equals the market price of the bond (including accrued interest). The spread is calculated iteratively.
The "yield spread of X over Y" is generally the annualized percentage yield to maturity (YTM) of financial instrument X minus the YTM of financial instrument Y. There are several measures of yield spread relative to a benchmark yield curve, including interpolated spread , zero-volatility spread , and option-adjusted spread (OAS).
But even last week's seismic, albeit temporary, meltdown in equities didn't really change things too much: according to the ICE BofA US High Yield Index Option-Adjusted Spread, the gauge remained ...
Option-adjusted spread; P. Preferred stock; ... Z. Z-spread This page was last edited on 26 March 2020, at 07:48 (UTC). Text is available under the Creative ...
option-adjusted spread, or the extra yield demanded by the security holder to compensate for the mortgage repayment option; current-coupon spread; volatilities; convexity; cost of carry; While all these factors can be important in accounting for changes in MBS returns, in practice a particular user may only select a subset.
(This is the embedded "option cost" that results in a lower option-adjusted spread.) Similar issues arise for callable bonds in the American municipal, corporate, and government agency sectors. As another way to compensate for prepayment risk (which is a reinvestment risk), a prepayment penalty clause is often included in the loan contract. [2 ...
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