My confusion is, the OAS comes from Z-spread with adjustment on option value. Does it mean the z-spread is assuming that the bond never defaults so that it does not include the "credit risk"? How can it doesn't include default risk meanwhile assuming recovery rate = 0?
I'm not quite comfortable with saying that Z-spread assumes 0 recovery in case of default. Rather, such spread calculations don't consider the bond to be a defaultable instrument at all. Its cash are certain to be paid. But they are discounted more than risk-free rate. We don't care why they are discounted (non-zero probability of default, liquidity...) We just calculate how much more they are discounted.
In contrast, there are ways to consider a bond as a defaultable instrument (for example, Bielecki ; Duffie & Singleton ; et al). For each cash flow, we allow for the possibility that it won't be paid, but we'll get some recovery instead.