I dint understand the part where u mentioned that nominal spread should be used for an option free bond. How will that be helpful
Guys, I’m so confused. So if the D is the right answer (i.e. incorrect) then how does the z-spread reflect the possibility that cash flows may change as interest rates change?
I dont think z spread tells us anything about the cashflows. The basic idea is to explain the spread between a bond and a treasury security for default, liquidity and all kinds of risks.
smeet Wrote: ------------------------------------------------------- > I dint understand the part where u mentioned that > nominal spread should be used for an option free > bond. How will that be helpful No I didn’t say that. The Z-sprread is a fine way to talk about the spread of an option-free bond.
libra_june Wrote: ------------------------------------------------------- > Guys, I’m so confused. > So if the D is the right answer (i.e. incorrect) > then how does the z-spread reflect the possibility > that cash flows may change as interest rates > change? The OAS takes account of how the cash flows may change as interest rates change.
oh, it’s starting sinking in now (at least i hope so) we use OAS if we want to compare bonds with different options while zero-volatility spread already considers those options Thank you all!