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How do I check whether the Option-adjust spread value I have retrieved from external calc utility is correct? Can you please tell me the steps to verify this?

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Is this utility something you've written yourself, or is it an existing third-party service? – chrisaycock Mar 14 '12 at 16:09
It's an existing utility created by other team. – AksharRoop Mar 15 '12 at 9:48
up vote 3 down vote accepted

The value it is giving you is incorrect. This is known because every option-adjusted spread calculation in existence is incorrect.

I am joking here, but only a little bit. They really are all terrible.

In any case, there do exist different types of OAS calculations, so you have to know which stochastic model this external utility claims to be using. Then, you must either implement that model yourself, or you must compare to an independent 3rd party implementation of that model.

The real trick in either case will be ensuring that the yield curves, mean reversion and volatility parameters used by the various implementations are matched up. In many third party utilities it is very tough to get an output of such parameters.

If instead you are satisfied merely to know the OAS calculator is "close", you could just check it on a variety of bonds, verifying that its OAS values are generally in line with, say, the ones on Bloomberg.

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