Schweser mock, v.2, exam.1 Q:108

Solution: OAS reflect average spreads over the Treasury sport rate curve.

Is this one of the definition of OAS? Can’t find it… Thanks.

OAS is a spread over a (usually Treasury) nonzero-volatility spot curve. Perhaps by “average spread” they mean that the same spread is used at each node on the interest rate tree. I don’t recall seeing that specific wording elsewhere. In any case, your quote omits that the spread is for the bond with the value of any embedded options removed; that’s the important point.

I think what they’re getting at is a reference to the Monte Carlo simulation where averaging NPVs occurs to derive the OAS; not particularly well written here.

Thanks ro424, Magician!

My pleasure.