- BondCalc can calculate for all bonds that it handles (excluding tax preferences and equity conversion features):
- OAS spread
- Option Value
- Option Free Yield
- Effective Duration

- Methodology follows An Introduction to Option-Adjusted Spread Analysis by Tom Windas.
- Numbers will be displayed on screen along with other results when a volatility is found on the Ctrl-O OAS Control Screen. Numbers will also appear on the term sheet.
- Numbers agree with Bloomberg's OAS1 screen for non-sinking fund bonds. Bloomberg's numbers for amortizing bonds are not correct [as of 1994].
- OAS Input Screen: where one can control volatility and have it change over time. The user also has control over the normally neutral probability assumption about rates going up or down (also controllable over time). 3-D skyscraper graphs are available for the binomial probability distribution and the risk free rates.
- OAS backsolving capability. Can enter the OAS spread or the Option Free Yield in the Yield Input Field. Append +O behind a spread for the OAS spread and +F behind any form of yield input for Option Free Yield. Entering +FD will find the Option Free Yield assuming maximum double-ups taken.
- The portfolio report writer has eight columns to cover the OAS numbers.
- OAS pricing when matrix pricing: Yields built from the spread matrices will be the option free yields for the securities. BondCalc will iteratively solve for the price that will give this yield. When the issue has sinking fund double-ups the program will take the lower of the price calculated using maturity flows and the one calculated assuming maximum double-ups taken. To activate set Matrix Pricing Type Field on Shft-F6 Portfolio Parameter Screen. In the single security section the OAS matrix price will appear as the average on the report, which matrix prices to each call date. See How-to notes on F1 at program top for more explanation.

Interest Rate Volatility - An entry is needed here (or enter a Term Structure on optional F7 popup input) to turn on the OAS pricing feature. Enter as a percent. To see what the numbers look like with 0% volatility then enter .0000001 in this field. See next. Pop-up Input Alternative - Enter volatilty numbers in percent that will be in effect for that year. Only enter at the points of change. Program will carry input through blank rows. Options ------- Probability that Interest Rates will Increase - Usually 0.5. But market participants usually expect that rates have a propensity to move in one direction over the other. Use next field to turn off after a few years or use F8 to control changing probabilities by year. Years Before Dropping Back to 0.5/0.5 - Time frame before turning previous field back to default probability. Pop-up Input Alternative - Enter probability numbers that will be in effect for that year. Numbers must be less that 1. Only enter at the points of change. Program will carry input through blank rows. Last number entered should be .5 to return probability back to neutral. Effective Duration Deltas - When measuring a bond's effective duration BondCalc shifts the benchmark yield curve by a nominal amount. Using new forward spot rates, and holding volatility and the bond's OAS constant, a new bond price is solved for. Using this, the OAS Duration and other measures of a bond's price sensitivity to changes in interest rates can be calculated. Also Calculate when No Calls Present - By default BondCalc does not expend the overhead to calculate OAS when there are no calls present, except when backsolving with OAS. Entering a 1 here will allow testing to see that there is no option value when there are no calls. This flag will also turn on OAS for bonds with greater than 30 years to maturity, as they take a long time to calculate. Opt Key Years for Partial Durations - If these are blank the partial durations will be broken into the benchmark years on the used yield curve. These override. A 0.5 year one will always be included.