Can someone explain what is OAS and z spread of straight bond and z spread of option embedded band?
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OAS i.e., Option Adjusted Spread i.e., the spread we demand after removing the option component from the bond. In class we even said OAS to be ORS (here R stands for Removed).
Z spread is a spread which contains cr & liq risk in case of st bond & includes call ka risk in case of option embedded bonds & therefore, we say Z spread of a st.bond can’t be compared with Z spread of a option wala bond.
Hope I was able to communicate. Thank you.
Can explain the calculation of OAS?
If I’m not wrong we were calculating OAS with the help of excel under solver fn in class.