Hi friends, Could you please help me understand the below statement - “If a particular security by the issuer is fairly priced, its OAS should be equal to zero”. Any help to understand this statement is highly appreciated, thank you friends. Regards, Gopal.
Hey Gopal, are you talking about using OAS as a relative valuation tool when the benchmark is the issuers own securities? This may be wrong but I have always found it useful to think this way: P(issuer’s securities)= CFs/(1+r)^t P(issuer’s security under consideration) = CFs/(1+r+OAS)^t if OAS = 0 then P(issuer’s securities) = P(issuer’s security under cnosideration) and security under consideration is fairly priced RELATIVE to the price of the issuer’s other securities. if OAS > 0 then P(issuer’s securities) > Price(security under consideration) and security under consideration is under priced RELATIVE to the price of the issuer’s other securities. if OAS < 0 then P(issuer’s securities) < Price(security under consideratoin) and security under consideration is over priced RELATIVE to the price of the issuer’s other securities. Hope this made sense!
Hi Alladin, After reading my post again realized that I didnt actually give you complete information. But you have answered my exact doubt and thanks a ton for that 
Your method really does help in understanding/remembering it! thank you mate Regards, Gopal.