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OAS Analysis for CMOs
Jun 1, 1994
Option-based valuation is essential to understanding the analysis of fixed-income securities with embedded options. The product of option-based valuation, option-adjusted spread, is now commonly used to understand the characteristics of one type of fixed-income security with embedded options, collateralized mortgage obligations. The author provides examples of the application of OAS analysis to CMOs and suggests a solution to the puzzle of large IO/PO strip OASs.
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