Hi,
At page 212 of the reading 24 in the book 4 they say that a callable debt often has a larger option adjusted spread than otherwise non-callable debt.
Let’s say that the z-spread if 5% and the option cost is 0.5%
OAS of a callable bond = z-spread - option cost = 5% - 0.5% = 4.5%
OAS of a non callable bond = z-spread-option cost = 5% - 0% = 5%.
I don’t get it.
Please help !