Hi:
I am interested in calculating the spread over a reference zero curve (Fabozzi's "zero volatility spread") for a bond. I would approach via Newton Raphson iteration, varying the spread (using ZeroSpreadedTermStructure) to make NPV() match the market quote on the bond. I would look to create a method under Bond to do this,
e.g. myBond.zeroVolSpread(Handle<Quote> marketQuoteCleanPrice).
What I was ultimately trying to get at was the CallableFixedRateBond "option adjusted spread" (OAS). I was looking at Fabozzi and his OAS for a callable bonds was the constant rate added to all the nodes on his binomial short rate tree that make the NPV equal the observed market price. Isn't
the spread over the tree a spread over forward rates, rather than zero rates ? Could I instead compute the spread the same way as I do for a non-callable bond, as mentioned above, by varying the spread over the input reference zero curve so that the the forward rate tree gets "raised" by the spread automatically/implicitly when you do this ? This would be easier than to go into the ShortRateModel and add the spread to each node of the tree.
Thanks,
GZH
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