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Appropriate Spread Measures for Fixed Income Securities

April 5, 2016

Does the security have an embedded option that is typically exercised?

  • If “No” us Z-Spread. This is the case for Plain Vanilla Corporate, Credit ABS and Auto Loan ABS.
  • If “Yes”, is the amount of the cashflow interest rate path-dependent?
    • If “Yes” use Option Adjusted Spread from a Monte Carlo Simulation
    • If “No” use Option Adjusted Spread from Binomial Model
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From → Asset Valuation

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