I need to finish my article on OAS and Z-spreads. One of these days.
The Z-spread (you’re correct: it means zero-volatility spread) is the spread added to each rate on the (Treasury) spot curve so that the price of the subject bond (discounted at spot-plus-spread rates) equals the market price. The Z-spread represents the additional yield received for all risks on the bond above those on risk-free (Treasury) bonds.
The OAS is the spread added to each in a (Treasury) binomial tree – these are forward rates, not spot rates – so that the price of the subject bond (discounted at forward-plus-spread) rates equals the market price. Because the binomial tree explicitly accounts for the value of any embedded options, the OAS is the additional yield received for all risks on the bond except option risk above those on risk-free (Treasury) bonds. That is, the OAS is the spread corresponding the the equivalent option-free bond (i.e., the bond that has all of the risks of the subject bond, but with no embedded options).