busterbluth

Your second statement is confusing option cost with OAS. A callable bond won’t have a larger OAS… it will have an option cost.
Although it typically wouldn’t be thought of as subtracting the cost of the option… you would calculate the OAS and then compare that to a similar option-free bond, and then basically say the difference is the cost of the option.
In a hierarchy, Nominal spread - Option Cost - OAS = 0.
If a bond doesn’t have an option, then Nominal Spread technically = OAS.