Was this one Yes for both? I think it was on a CMO or CMBS? anyone?
Both are call protection
Yes, and the fixed income structure provided call protection through both of these, correct? If so, + 1 for me and got lucky w/ educated guess…
Z or OAS or both? Which cheaper? The straight bond?
straight bond cheaper…it had the highest OAS… don’t clearly remember the Z or OAS question, can you provide more detail?
Which method to value the structures given? Also…coupon duration market prices?? I had no idea.
Z spread. Funny, I actually logically deduced it must be Z spread as ABS doesn’t have option due to lack of prepayments, but because I use OAS spread for ABS at work almost every day I chose OAS. Duh.
I think it was OAS for both, but don’t remember the question clearly…I think it was Auto Loan and some other type of ABS , credit card receivable or something?,… since they both had prepayment features, you need to use OAS, etc… Empirical uses historical prices coupon curve uses yield curve changes cash flow uses cash flows and probability assumptions or something…have no idea on this one… I think I picked cash flow was INCORRECT since it said that it used historical prices when empirical uses historical prices…guessed on this one
I just looked it up…coupon curves use market prices to estimate duration. (Vol 5 bottom page 472) And on that Z vs OAS question…Its Z Spread. Model Computational Time costs make Z better than OAS despite coming up with same value. Pwned.
oh sh*t…was it z spread…i thought Z were only used for corp. bonds…i thought OAS was used for ABS and Mortgages, etc
I agree, i also remember that the wordings on coupon curve was incorrect and hence was my choice OAS vs Z -With an Auto loan where there is no prepayment risk go with Z. OAS is equal to Z but there is modeling risk with OAS and you do not want that when Z can get you the answer
Trogdor Wrote: ------------------------------------------------------- > Z spread. > > Funny, I actually logically deduced it must be Z > spread as ABS doesn’t have option due to lack of > prepayments, but because I use OAS spread for ABS > at work almost every day I chose OAS. Duh. Good to hear from you, how did the test go?
There was one Q also about what happens if volatility increases. I think the answer was that the value of the call and put will increase but the straight bond won’t. Defeasance and yield maintenance yes to both. Z spread only. Highest OAS cheapest - I think I got this one wrong. I think I said C was cheaper than A or something. Coupon curve from market prices. I knew this one. Missing the 6th Q on this item set. I did 5151 for the record.
Z spread only? But isnt it so that with zero volatility the OAS is EXACTLY equal to the Z?
The phrase they used was “not appropriate;” I felt that, while Z-spread was perhaps “ideal,” using the OAS spread was still “appropriate.”
yes, but you do not want to use a method which has more chances of being wrong (modeling risk with OAS) when you have an equal other oppty (Z spread)
Defeasance and Yield Maintenance are just for CMBS right?
supersharpshooter Wrote: ------------------------------------------------------- > Defeasance and Yield Maintenance are just for > CMBS right? yup
Im with you crow I put using either one is appropriate, i.e. valuing an auto ABS security using Zspread or OAS is appropriate since as for auto ABS (and per the vignette) the prepayment on auto ABS isn’t tied to interest rates hence making the Zspread=OAS
its the Z spread. you only use the OAS if the prepayment rates are “path dependent”, and auto loans/credit cards are not.