“OAS is particularly useful when analyzing bonds with embedded options. The value of OAS is that it is independent of assumptions such as volatility. It adjusts the bond’s cash flows for the embedded option when computing the spread to the benchmark interest rates.”
Is the statement correct regarding option-adjusted spread? The answer is “incorrect regarding volatity”.
But I think OAS is independant of volatility. OAS removes the spread of optionality, and it is the spread for a straight bond. A straight bond’s value is independant of volatility.
Would suggest you to read the CFAI curriculum (EOC problem-6).
OAS is a byproduct of the of the Biomial model which is dependet on certain assumptions which includes the Volatility assumption. So essentially, OAS is dependent on the volatility assumed in the bionomial model