stalkey

if there is more volatility, then the value of my security is less, because call option has more value and value is reduced.

^this is correct and the nominal spread will go up

nominal spread = OAS + option value in spread

you know that OAS is the spread that is udjusted for optionality

it gets "cheaper" (based on lower price and higher nominal spread) but it is not real, because the value and spread changed just due to the change in option value and OAS stays the same (this is the important spread you look at when judging investment from credit risk point of view)

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so if there is more volatility, shouldn^t then my security become cheaper?? (in terms of spread)

^yes in terms of nominal spread (or z spread)

but no, it gets more expensive, since OAS goes down? i jsut dont understand this!

^because they assume that price did not change. If the price does not change, nominal spread does not change, but if option value changes the OAS must go down


in real world I think that if vol changes, price and nominal spread change and OAS stays the same. But in real life you can see Price and nominal spread in the market and you must estimate correct option value and OAS.

The thing is that in real life it is usually problem to get correct vol, therefore you use different vols to get OAS from nominal spread, and this is the analysis they are doing there