In this paper, we present electronic and optical properties of silver-based delafossite compound AgAlO2 (AAO). For the electronic properties, we have computed band structure and density of states. The origin of band structure is elucidated in terms of density of states. A significant contribution in band structure comes from Ag-4d and O-2p states around the Fermi level. The estimated band gap shows the indirect semiconducting nature of AAO having the band gap value of 2.34 eV. For the optical properties, we have calculated frequency dependent dielectric functions. The peaks in the imaginary component of dielectric function are explained by electronic transitions in the dispersion relation. Our computed results are in agreement with those available in the literature. The wide band gap and hence transparency for the UV and visible incident light photons makes AAO a precious material for transparent electronics. (C) 2016 Elsevier B.V. All rights reserved.