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Basic Question 13 of 13

True or False? The OAS can be negative if the assumed volatility of interest rates is high enough.
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User Contributed Comments 2

User Comment
danlan2 OAS=Z-spread-option cost, so when the volatility of interest rates is very high, option cost is very high and OAS can be negative.
bodduna High Volatility -> Low OAS

Low Volatility -> High OAS
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Lina

Lina

Learning Outcome Statements

explain the calculation and use of option-adjusted spreads;

explain how interest rate volatility affects option-adjusted spreads;

CFA® 2025 Level II Curriculum, Volume 4, Module 28.