Option-adjusted spread

CFA Level I Glossary

Option-adjusted spread is the constant spread over the benchmark tree or curve after stripping out the value of embedded options. Conceptually it is like a Z-spread minus the option cost in spread terms. OAS allows cleaner comparison across callable, putable, and option-free bonds. Comparing raw Z-spreads on option-bearing bonds as if they were pure credit spreads is the classic error.

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