Yield spread relationship

Because OAS analysis takes into account a mortgage-backed bond s option feature, it is less affected by a change in interest rates or the yield curve, which affect prepayments, than the bond s yield spread. Assuming a flat yield curve, the relationship between the OAS and the yield spread is expressed in equation (14.18). 

This relationship can be observed when yield spreads on current-coupon mortgages widen during declines in interest rates. As the possibility of prepayment increases, the cost of the bonds option feature rises put another way, the option feature gets closer to being in the money. To adjust for the increased value of the option, traders price higher spreads into the bond, which keeps the OAS more or less unchanged. 

Equation 17.3 expresses the yield spread between a high-coupon bond and a par bond as a linear function of the spread between the first bond s coupon and the par bond s yield and coupon. In reality, this relationship may not be purely linear. The yield spread between the two bonds, for instance, may widen more slowly when the gap between the coupons is very large. Equation 17.3 thus approximates the effect of a high coupon on yield more accurately for bonds trading close to par. 

In polymers, it is always observed that a packet of carriers spreads faster with time than predicted by Eq. (30). Thus, the spatial variance of the packet yields an apparent diffusivily that exceeds the zero-field diffusivity predicted by the Einstein relationship. Further, the pholocurrent transients frequently do not show a region in which the photocurrent is independent of time. As a result, inflection points, indicative of the arrival of the carrier packet at an electrode, can only be observed by plotting the time variance of the photocurrent in double logarithmic representation. The explanation of this behavior, as originally proposed by Scher and Lax (1972, 1973) and Scher and Montroll (1975), is that the carrier mean velocity decreases continuously and the packet spreads anomalously with time, if the time required to establish dynamic equilibrium exceeds the average transit time. Under these conditions, the transport is described as dispersive. There have been many models proposed to describe dispersive transport. Of these, the formalism of Scher and Montroll has been the most widely used. 

As the viscosity of the normal mantle and that of plume material are unknown, we present scaling relationships for the spreading time of inviscid material. Truly inviscid material continues to spread forever. Here the plume material is fluid until conductive cooling increases its viscosity. Equating the cooling time in (12) to the spreading time from (A6) yields the ponding thickness for infinite radial flow ... 

As we have seen, interest rate swaps are valued using no-arbitrage relationships relative to instruments (funding or investment vehicles) that produce the same cash flows under the same circumstances. Earlier we provided two interpretations of a swap (1) a package of futures/forward contracts and (2) a package of cash market instruments. The swap spread is defined as the difference between the swap s fixed rate and the rate on the Euro Benchmark Yield curve whose maturity matches the swap s tenor. 

This relationship between the credit spread, the hazard rate, and recovery rate is intuitively appealing. The credit spread is perceived to be the extra yield (or return) the investor requires for credit risk assumed. For example ... 

The first method equates a strips value with its spread to a bond having the same maturity. The main drawback of this rough-and-ready approach is that it compares two instruments with different risk profiles. This is particularly true for longer maturities. The second method, which aligns strip and coupon-bond yields on the basis of modified duration, is more accurate. The most common approach, however, is the third. This requires constructing a theoretical zero-coupon curve in the manner described above in connection with the relationship between coupon and zero-coupon yields. 

FIGURE 16.10 shows the cash flow for the Treasury s principal strip. Its yield is 4.0751 percent, corresponding to a price of 67.10027 per 100 nominal, which represents a spread above the gross redemption yield of the coupon Treasury. This relationship is expected, given a positive yield... 

Integration of the pure-component isotherm according to the Gibbs equation [Eq. (3.50)] yields, for each component, the relationship between spreading pressure and equilibrium pressure ... 

Strain Hardening. Annealed Ti-15-3 does not follow the usual strain hardening laws as the spread between the tensile yield and ultimate tensile strengths is quite small. Once stable flow is established (post yield strains), an approximately exponential stress-strain relationship is observed. The stress-strain curve at large strain may be estimated as ... 

The spread over swaps is sometimes called the I-spread. It has a simple relationship to swaps and Treasury yields, shown here in the equation for corporate bond yield. 

Equation 5.205 allows determining the final droplet radius, r , at the end of the spreading process using the known dependence G(pjJ. To this end, it is necessary to substitute the expression for the equilibrium fraction of overturned molecules under droplet from relationship (5.198) into Equation 5.205, which yields... 

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