OAS

(redirected from Option adjusted spread)
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Related to Option adjusted spread: Effective duration
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Linked to Bear Stearns' option adjusted spread model, the prepayment model allows investors to differentiate and value the prepayment uncertainty inherent in home equity securities with very diverse loan and borrower attributes.
Despite the theoretical and computational advantages of the price-process model, and despite the fact that the large cross-sectional time-series variation in the fitted option adjusted spreads of interest-rate-process models create serious conceptual problems in understanding and explaining market prices (Ho, 1997), the simulation-based, interest-rate-process model represents an earlier model whose more widespread usage by traders might result in substantial buy and sell orders that could artificially push mortgage market prices in the direction of their values computed using that model (Davidson et al.
However, thanks to a 47 basis point rise in option adjusted spreads, their returns fell short of Treasuries by 2.