medium · Debt Capital Markets bond-instruments-structures
Which of the following describes the behavior of the Option-Adjusted Spread (OAS) relative to the Z-spread for a callable bond as interest rate volatility increases?
- The OAS and Z-spread converge to the same value.
- The OAS increases while the Z-spread remains constant.
- Both the OAS and the Z-spread decrease proportionally.
- The OAS remains constant while the Z-spread increases.
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