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5

The answer to your first four questions is affirmative. Option-adjusting the spread makes an equivalence between everything theoretically possible, but the quality of results depends significantly on the quality of your interest rate model and its calibration. My personal opinion, though, is that the results need to be treated carefully because the OAS ...


4

This is known as a 'crossed' book, the exchange will attempt to uncross the book at the price at which the maximum amount of volume can trade. In your example at the price of 42 there's only 3533 amount of buying quantity, and there are more than enough sellers to cover this. At a price of 40, there's now 3533+425 buying quantity willing to trade, and still ...


3

It depends on the exact structure. E.g., a butterfly can be bought or sold and every market participant understands which individual options are bought or sold given knowledge of the agreed spot level and distance of the wing from spot in regards to agreed strikes. Please note that a butterfly can be structured as a combination of calls but also through ...


3

As @babelproofreader mentioned, I recently blogged about the Roll model (see the original paper), which provides a very simple method for inferring the bid/ask spread based on trade prices. In short, you can estimate the cost using using the covariance: $c = \sqrt{\gamma_1}$. Where $\gamma_1$ is the $Cov(r_t, r_{t-1})$. (The R code is provided in my post). ...


2

I suggest searching all the possibilities using Excel. Code the option pricing formulas into VBA functions (if you have not done so already) with cell to hold option strikes and quantities, and then set up your price scenarios for a grid of 1% moves in the underlying. You have now reproduced the information contained in your Bloomberg plots pictured ...


2

Net the vegas of the individual options in the spread. Inherently, the closer together the strikes, in the spread are, the less sensitive to changes in implied vol the spread is. The opposite is true for wider spreads. Technically, the wider the spread the more it follows the dynamics of the skew itself, depending on where the spread is relative to ...


2

When speaking with quants, I call such things Boundary Conditions. With traders I tend to use Terms or Features.


2

First, I assume that when you say: And I was no wondering if it would be a good idea to place bid/ask offers instead of limit orders... You mean that you are going to be placing non-marketable limit orders inside the posted bid/ask spread; whereas before you were sending marketable limit orders that crossed the spread. You didn't mention the type of ...


2

You are referring to the Penny Pilot Program. Only options whose premiums are quoted at a price less than \$3 may be eligible for penny increments, except for IWM, QQQ, and SPY, which are always quoted in pennies. The list of permitted classes doesn't seem to come from specific volume criteria. Instead, the SEC and the exchanges together roll-out names in ...


2

This spread can't be statically synthesized. However you can synthesize it dynamically by trading in the underlying contracts. You would first value the option using standard theory (this involves solving a two-dimensional PDE, or using Monte Carlo) to get a price $V(F_1,F_2)$ in terms of the prices of the underlying futures contracts. Then the holdings in ...


1

I'm still not entirely certain exactly is the question you want answered. If you are you asking is "uninformed" flow more valuable than "informed" flow, then the answer is an emphatic yes otherwise funds like Citadel wouldn't pay so much for it. See here for details The only issue to consider is that will you be able to get a piece of the "uninformed" ...


1

Solution is following: Calculate the spread: spread = log(P1 / P2) Find minimum value of spread: minVal = Min(spread) If minVal < 0 then do transformation for spread: spread = spread + Abs(minVal) + 0.01 Now we have spread with positive values.


1

There is no such thing as a "proper" interpolation of CDS spreads. The only criterium your interpolation must obey is the absence of arbitrage. Note that, assuming that $spread(3M) < spread(6M)$, $spread(4M)$ can take any value between $spread(3M)$ and $spread(6M)$ without creating an arbitrage opportunity (actually it can be even slightly less than ...


1

In your scenario, the main factor behind the spread would be the forward repo rate implied by the term repo rates on the ctd, one termed to the delivery date of the front contract, the other termed to the back contract. In the current rate environment this will have little to do with the term structure of mm rates. Instead, any difference between the repos ...


1

First some remarks in a model agnostic sense. Credit spread is actually thought to be significantly smaller than the actual one (some even say about 1/3 only, for corporates Longstaff 2005 reports the range 5%-25% for the default component), as there are many other factors such as liquidity. For PDs it might be slightly better to use CDS spreads. In any case ...


1

You may wish to consider this process a little more generally. That is to say, you are defining a cohort of comparable bonds as 23-year A- rated bonds. Bloomberg doesn't supply a long-dated A- curve, so no matter how you approach this, you will effectively be modeling this bond spread against others in its cohort. I suggest redefining the cohort to be ...


1

DV01 is your cash exposure to a BP change. Once you have €45 and €25 as DV01s for Bobl and Euribor respectively, you simply divide the two to figure out your DV01 neutral position sizes. In my particular example buy 180 Euribors to sell 100 Bobls for no raw duration risk. You can also choose weighing schemes that account for varying volatilities and ...



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