Chapter 6: Page 188

Bullet point that reads:

“Interest rate volatility is a critical assumption. Specifically, the higher the interest rate volatility assumed, the lower the OAS. In comparing the OAS of dealer firms, it is important to check on the volatility assumption made.”

The statement should have been qualified because it pertains to bonds where the issuer/borrower has the option (e.g., callable bonds and mortgage passthrough securities). In the case of a putable bond, the opposite is true.