Both the option-adjusted (OAS) and the zero-volatility spread (Z-spread) are useful to calculate the value of a security. In general, a spread represents the difference between the two measurements. The OAS and Z-spread help investors compare the yield o...
If the security has embedded options, then theoption-adjusted spread(OAS) should be used. The OAS is the spread adjusted for the embedded options. To derive the OAS, thebinomial modelcan be used if cash flows depend on current interest rates but not on the path that led to the current i...
If there are integrated choices in the security, we must utilize the option-adjusted spread (OAS). The spread is modified for the embedded options to create the OAS. The OAS may be derived in two different methods. One approach comes from the binomial model, which may be applied when cash...