Explanation:
The correct answer is A.
The option-adjusted spread (OAS) is a financial metric used to evaluate the relative value of a security by comparing its market price to its model value. The OAS is defined as the spread that, when added to risk-neutral rates for the computation of discounted values, makes the market price of a security equal to the price of its corresponding model. This means that the OAS is the constant spread that needs to be applied to the risk-neutral interest rates such that the present value of the cash flows, discounted at these rates, equals the market price of the security.
Ultimate access to all questions.
Q.1632 An option-adjusted spread is a widely-used measure of the relative value of a security, that is, of its market price relative to its model value. In addition, an option-adjusted spread can be elaborated as spread which makes a security’s market price ___ the price of its corresponding model when discounted values are computed at risk-neutral rates plus that spread.
A
equal to
B
greater than
C
lesser than
D
None of the above
No comments yet.