What is an option-adjusted spread (OAS) and how is it used when comparing bonds?

• A. OAS is the spread that, when added to the modeling framework, makes the model price equal the market price.
• B. OAS is the spread that, when added to the model, makes the model price equal the market price; adjusts for embedded options to compare bonds.
• C. OAS is the option value of a call option embedded in a bond.
• D. OAS is the standard deviation of asset returns.

Answer: (B)