High-convexity portfolios outperform low-convexity portfolio

An important drawback of "traditional yield spread analysis" is the "failure to take into account future interest rate volatility that would affect the expected cash flow" of a fixed income security. How does option adjusted spread analysis correct for the "failure" of traditional yield spread analysis in the valuation of bonds with embedded option features? Once the option adjusted spread has been determined, how can the cost of option be calculated? What are some important pitfalls of using option adjusted spread analysis to value mortgage backed securities and other collateralized debt obligations?

   Related Questions in Business Economics

  • Q : The economies of Japan and US Question:

    Question:

    What can we learn from the Japanese experience? Is the US headed for a 'lost decade?

    Answer:

    There was

  • Q : Introduction of the term Control

    Give a brief introduction of the term Control Principle?

  • Q : Nature and Scope of Economics Nature

    Nature and Scope of Economics:

    Introduction

    Economics is a social science that

  • Q : Labour economic Can someone help me in

    Can someone help me in finding out the right answer from the given options. The Taft Hartley Act of 1946 made it illegal to encompass a: (1) Right-to-work law passed by the state legislature. (2) Conviction for the misdemeanor and serve as union officer. (3) Union for the agricultural migrants or go

  • Q : Production possibility frontier

    Question:

    Scenario:

    You have been hired as the economics adviser for the newly elected State Premier. On your first day, the Premier introduces you to the new Minister for Health

  • Q : Writ short note on the Income of

    Writ short note on the Income of personal distribution?

  • Q : Introduction of the term Cost of

    Give a brief introduction of the term Cost of retained earnings?

  • Q : Describe cost of equity shares Briefly

    Briefly describe cost of equity shares? And also write down way to evaluate the cost of equity shares?

  • Q : Economic crisis situation in Europe

    Question: Describe the present economic crisis situation in Europe.   Why has it been so difficult for the Europeans to find a solution to this problem?   Comment on what implications the crisis may have for the rest of the world i

  • Q : Calculate Equilibrium Quantity and Price

    1. The owner of a firm calculates that next year's profit will be $1,000. Each successive year profit will increase by 10% (i.e. year 2: $1100; year 3: $1210 and so on.) At the end of the 5th year the firm could be sold for $20,000. 
    A) if the appropriate di

2015 ©TutorsGlobe All rights reserved. TutorsGlobe Rated 4.8/5 based on 34139 reviews.