Actually you just need to associate the work items (PBI > Bug > Task). Once the association is created, then you can find the linked work items under Related Work.
In my opinion, both options are OK. The two options you mentioned only reflect how the work items shown on backlogs and boards. But if you already linked the related PBIs, Bugs, Tasks, then open any of the work items you can find the relationship between them (Parent/Child ~ where the bug came from).
For example:
- Treat Bugs at the same level as PBIs (
Bugs are managed with requirements)
- Treat the Bugs as a Task (
Bugs are managed with tasks)
UPDATE:
Both of them can not completely achieve your requirements (No better ways to achieve that based on the current features ).
However if you are more concerned about where the bugs come from, then option 2 ( Treat the Bugs as a Task) is better, as it can show dependencies/relationship intuitively in backlogs (Bug is under specific PBI).
If you are more concerned about the hierarchical structure of the work items, then option1 (Treat Bugs at the same level as PBIs) is better (PBI > Bug > Task).
Whatever you can find where the bug comes from via the related link.
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solved If Bugs are on the same level as PBIs, how do I know where the bug came from in TFS 2015? [closed]