Introduction to Option-Adjusted Spread Analysis

Top traders, investors, and analysts agree that one method, option-adjusted spread (OAS) analysis, is the most useful way to compare and value securities with options. Nearly every day the bond market figures out a new way to structure securities, most of which involve options.


This book explains OAS analysis in plain English, presenting each step in the method clearly and concisely. Topics covered include:



Why yield-based analysis breaks down for nonbullet bonds

How to model put and call provisions as embedded options

How to distinguish the intrinsic and time components of option value

How to model interest-rate volatility, future interest rates, and future bond prices

How to calculate option-free price and yield

How to estimate the "fair value" of a bond

How to calculate implied spot and forward rates





Salespeople, traders, and investors will want to read this book and keep it on their desks.