I just wanted to confirm something. If bond has call option, the investor needs to be compensated so: Z-Spread > OAS If bond has put option, the investor pays for this right so: OAS > Z-Spread Is this correct? Thanks in advance
Yep.
yup, and remember bonds with options where interest rates are not path dependent (like a callable corporate) need the OAS spread from the binomial model bonds with options where interest rates are path dependent (MBS, certain ABS) need the OAS spread from Monte Carlo simulation …