Option value is the price impact of embedded options on a bond. Computed as the difference between the option-free tree price and the option-adjusted tree price, both at the solved OAS. For callable bonds: Option Value = V(option-free) − V(callable) > 0 (the call limits upside, costing the bondholder). For putable bonds: Option Value = V(putable) − V(option-free) > 0 (the put provides downside protection, benefiting the bondholder). Higher interest rate volatility → higher option value for both calls and puts. A deep out-of-the-money option has near-zero value. Expressed in price points per 100 par — e.g., option value of 1.50 means the embedded option is worth 1.50 points of price.