Which of the following statements most accurately evaluates the use of the option-adjusted spread (OAS) to analyze
Question:
Which of the following statements most accurately evaluates the use of the option-adjusted spread (OAS) to analyze the bonds held in Hanover-Green’s portfolio?
A . OAS excludes default risk from its calculation; therefore OAS has limited applicability to the analysis of speculative grade bonds.
B . OAS uses Monte Carlo simulation to factor out default risk from the spread; therefore OAS is not well suited to the analysis of speculative grade bonds.
C . OAS is often used to evaluate bonds other than mortgage-backed securities. It is a very useful tool, especially appropriate for high-risk positions such as speculative grade bonds.
Step by Step Answer:
Fixed Income Analysis
ISBN: 9788126563128
3rd Edition
Authors: Barbara S. Petitt, Jerald E. Pinto, Wendy L. Pirie, Bob Kopprasch