Darien

Hey Gopal, are you talking about using OAS as a relative valuation tool when the benchmark is the issuers own securities?

This may be wrong but I have always found it useful to think this way:

P(issuer's securities)= CFs/(1+r)^t
P(issuer's security under consideration) = CFs/(1+r+OAS)^t

if OAS = 0 then P(issuer's securities) = P(issuer's security under cnosideration) and security under consideration is fairly priced RELATIVE to the price of the issuer's other securities.

if OAS > 0 then P(issuer's securities) > Price(security under consideration) and security under consideration is under priced RELATIVE to the price of the issuer's other securities.

if OAS < 0 then P(issuer's securities) < Price(security under consideratoin) and security under consideration is over priced RELATIVE to the price of the issuer's other securities.

Hope this made sense!

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You must be the square root of two cause i feel irrational around you



Edited 1 time(s). Last edit at Monday, August 29, 2011 at 09:39AM by Alladin.