# Tag Info

4

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 ...

2

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 ...

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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

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 ...

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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 ...

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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 ...

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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 ...

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