Which of the following statements most accurately evaluates the use of the option-adjusted spread (OAS) to analyze

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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.

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Fixed Income Analysis

ISBN: 9788126563128

3rd Edition

Authors: Barbara S. Petitt, Jerald E. Pinto, Wendy L. Pirie, Bob Kopprasch

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