suyash1989

option adjust spread is the spread of the bond to Tbond would have been if the bond is option free. so when interest rate volatility increases, call/put provisions would be more valuable. call options would be more expensive to borrow(the borrower owns the call), therefore lower OAS for the borrower, put options would be more expensive to lend ( the lender owns the put), therefore a higher OAS for the borrower. it is confusing, i hope i got it right.