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Introduction to Option-Adjusted Spread Analysis, 3rd, Revised and Expanded Edition of the OAS Classic by Tom Windas

Tom Miller (Revised by)
ISBN: 978-0-470-88515-4
159 pages
May 2010
Introduction to Option-Adjusted Spread Analysis, 3rd, Revised and Expanded Edition of the OAS Classic by Tom Windas (0470885157) cover image


Top traders, investors, and analysts agree that one method, option-adjusted spread (OAS) analysis, is the most useful way to compare and value securities with options. Nearly every day the bond market figures out a new way to structure securities, most of which involve options.

This book explains OAS analysis in plain English, presenting each step in the method clearly and concisely. Topics covered include:
  • Why yield-based analysis breaks down for nonbullet bonds
  • How to model put and call provisions as embedded options
  • How to distinguish the intrinsic and time components of option value
  • How to model interest-rate volatility, future interest rates, and future bond prices
  • How to calculate option-free price and yield
  • How to estimate the "fair value" of a bond
  • How to calculate implied spot and forward rates

Salespeople, traders, and investors will want to read this book and keep it on their desks.

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Table of Contents

Foreword  (Peter Wilson).

Introduction: Why OAS Analysis?

PART ONE. Yield Analysis versus OAS Analysis. 

CHAPTER 1. Fatal Flaws in Traditional Yield Calculations  

CHAPTER 2. The Bond as a Portfolio.  

PART TWO. Valuing Options. 

CHAPTER 3. Intrinsic Value. 

CHAPTER 4. Time Value. 

PART THREE. Modeling Interest Rates.

CHAPTER 5. Implied Spot and Forward Rates. 

CHAPTER 6. Beyond the Lognormal Model. 

CHAPTER 7. Volatility and the Binomial Tree. 

CHAPTER 8. Matching the Model to the Market. 

PART FOUR. Measuring the Spread. 

CHAPTER 9. Bullet Bonds. 

CHAPTER 10. Nonbullet Bonds. 

PART FIVE. Applications of OAS Analysis. 

CHAPTER 11. Evaluating Performance. 

CHAPTER 12. Estimating Fair Value.


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Author Information

Tom Miller, who revised and expanded this edition, was head of the fixed income and derivatives sales team at Bloomberg L.P. in New York. He teaches at the New York University School of Continuing and Professional Studies. Prior to joining Bloomberg, he traded in the money markets for eleven years.
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