Getting the CFA books before registering for the exam

Question

Hello! I'm new here, and I haven't been able to find any threads about this, so here goes.

I'm registered for the Level I exam in December. In my work as a software developer, I deal with lots of fixed income calculations, and the Level I books have really helped me understand bond analytics. But my team's next big project is OAS, which is not covered until Level II. So I'm wondering, is there any way I can get hold of the Level II books now instead of waiting till I can register for the exam? Besides helping me out at work, having the books would also help me get a jump on preparing for Level II next summer, which seems like a good idea since I've heard it's quite hard. We have a number of OAS-related books at the office, but I'd rather learn about it in the context of the CFA materials.

Thanks, and good luck to those taking the June exam!

TimBCanada · Answer

Good points @edulima. Schweser refers to OAS as "option-removed spread" which is a helpful way of thinking about it. It allows an apples-to-apples comparison for bonds once their options are taken out of the equation so that you can focus just on liquidity and credit risk to figure out of it is over or underpriced (knowing higher rates = lower prices)

edulima · Answer

Hi @haokaiyang, there's not that much on OAS in Level II; perhaps a few LOS cover it in the context of option pricing models. Here's my summary of "what you need to know about OAS for Level II exam", on top of what you should already know about it from level I (definition, etc):

1) OAS is used in the calculation of effective duration of bonds with embedded options: first calculate OAS given an interest rate tree (built from a spot yield curve and volatility assumptions) and the price of the bond, and then add the OAS to every node of the new interest rate tree constructed after a "Delta y" parallel shift on the spot yield curve.

2) When using different benchmark yield curves, OAS will reflect different risks of a security. For example, for the Treasury and a Bond Sector benchmark yields, OAS will reflect both credit and liquidity risks; for an issuer-specific benchmark yield, OAS will only reflect liquidity risk. Obviously, OAS will have already corrected for the effects of the option (unlike the Z-spread, for example).

3) A good rule of thumb I've noticed can be useful in the exam is that a high OAS usually corresponds to a favorably priced security.

Hope this helps (it definitely helped me gather my "last minute" knowledge for tomorrow's exam :-) )!