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The excess spread is the difference between the interest rate received on the underlying collateral and the coupon on the issued security. It is typically one of the first defenses against loss. Even if some of the underlying loan payments are late or default, the coupon payment can still be made.
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.
For example, a $300,000 30 year mortgage with an interest rate of 6.5% could be split into 300 1000-dollar bonds. These bonds would have a 30-year amortization, and an interest rate of 6.00% for example (with the remaining 0.50% going to the servicing company to send out the monthly bills and perform servicing work).
How to calculate a factor rate. Using the factor rate provided by the lender, you can quickly calculate the cost of the borrowed funds. For example, if you borrowed $100,000 with a factor rate of ...
FVA may be decomposed into FCA for receivables and FBA for payables - where FCA is due to self-funded borrowing spread over Libor, and FBA due to self funded lending. Relatedly, LVA represents the specific liquidity adjustment, while CollVA is the value of the optionality embedded in a CSA to post collateral in different currencies. CRA, the ...
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For consumer loans, particularly home mortgages, an important yield spread is the difference between the interest rate actually paid by the borrower on a particular loan and the (lower) interest rate that the borrower's credit would allow that borrower to pay. For example, if a borrower's credit is good enough to qualify for a loan at 5% ...
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.