Questions tagged [spread]

A spread is a difference between two prices or yields. Bid-ask spreads reflect that the most competitive buyers and sellers want to trade an asset at different prices. Yield spreads reflect a difference in bond tenors, credits, liquidity, optionality, or other features. Option spreads reflect views on prices beyond just positive or negative. Commodity spreads reflect time evolution of supply or demand or the gross producer margin for creating a product.

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57 views

Interpretation of regression of portfolio return on TED spread [closed]

I have a time series regression that I'm running which uses the returns of a portfolio as the dependent variable and uses the TED spread as the independent variable. So --> Y = Return of portfolio ...
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64 views

Silly question: Why don't traders look at the sqrt(Var[ABC] - Var[XYZ]) when looking at gaps?

As you know, variances are additive but volatilities are not. If that is the case and I open a long position on product ABC at an implied vol of 28% and a short position on product XYZ at an implied ...
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15 views

How to correctly build a spread candlestick chart between two assets (avoid inconsistent OHLC)

I just wondering how charting platforms plot spreads between two assets. For example, if we want two create spread chart between APPL / AMZN we can substract or divide each asset: if we divide two ...
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37 views

Zero Volatility Curve (Z-spread) and Non-zero Volatility Curve (OAS)

When looking at credit risk for bonds, the measures that are often used -- depending on your purpose -- are the z-spread or the OAS spread. By definition, z-spread is the parallel shift from the zero-...
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2answers
118 views

Why do E-mini S&P 500 futures have small bid-ask spreads?

I noticed that E-mini S&P 500 futures (ES) typically trade with a very narrow bid-ask spread of 1 tick. What contributes to this small bid-ask spread? I can think of two reasons: Lots of active ...
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117 views

Are bid-ask spreads in options related to bid-ask spreads in their underlying?

If an underlying has a large bid-ask spread, does it mean that its options will have large bid-ask spreads too? Is there any relation between the bid-ask spreads of options and the bid-ask spreads of ...
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732 views

Why there is no Bid Ask Spread in Futures Markets?

I heard that there is no bid-ask spread in futures markets. Could anyone explain why there would be no difference between the selling and buying price of a futures contract? Thanks in advance!
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31 views

Fitting a Spread into ARIMA AR(1) process

I'm a newbie to econometrics. I've simply ran a regression and have coefficient values of the variables. I'm running a regression for a crypto data, and I've gotten the Spread of the variables. To ...
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116 views

Simulating Bid-Ask Spreads

I would like to examine the impact of the volatility on the transaction costs (Bid-ask spread). In my case I would like to examine this for power prices. However, I don't have access to actual order ...
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71 views

Feature engineering for mid-price prediction - quickly changing features

I'm training a fully-connected feed-forward neural network on HFT (limit order book) data to predict the midprice at timepoint $t+\Delta t$ (assuming that $t$ is the current moment, and $\Delta t$ is ...
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33 views

Can the spread between option premium for bull call spread change over time?

I have created a bull call spread. There was spread of 70 dollars between the option premium of 2 strikes I selected. Now the spread between option premium of 2 strikes is greater than 100 dollars. ...
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33 views

Price of Call & Put Spreads as Volatility Tends to Infinity in Bachelier Model

In the standard Black Scholes model, as we take volatility to infinity, the price of call spreads goes to zero and the price of put spreads goes to the difference in strikes. I ran a simulation using ...
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Market Impact proportional to the bid-ask spread

Empirical studies have shown that market impact can be linked to the following parameters: $$ \mathcal{I}(Q) = \kappa \ . \ \sigma \ . \ (\frac{Q}{V})^\gamma + \alpha \ . \ \psi_{BA} ...
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99 views

Why is OLS based spread not reflective of actual difference?

I'm trying to define and track the spread between two time series (data available here), for the purpose of learning pair trading basics. When running a cointegration test the two series seem to be ...
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1answer
51 views

Trading inside/ outside the spread

Can anyone explain to me what trading inside/ outside the spread mean? And why are trades that occured outside the spread are to be considered anomalous? Thanks
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What's the industry standard/typical way to model contango or futures spreads?

If you want to include futures spread either as a response or predictor, I would imagine you also need to include time to expiration somewhere in your model. What is the industry standard way to ...
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36 views

Spread determinants

Knowing that bond A is more liquid that bond B, i.e higher volumes are traded on bond A, does this information have any impact on the spread? Can we say that the large volumes traded on A will ...
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54 views

Futures Carry for Index Spread Trade

This question is about a leveraged trade involving index futures. Let's use an example of buying two contracts YM futures and selling three contracts RTY futures. CME will give the trade a margin ...
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Historical data on european corporate bonds [duplicate]

I am trying to run a factor analysis on European corporate bonds and I need historical data since mid - late 90s on : 1.bonds listed 2.spread 3.firm´s total debt at the time 4.Sector of firm 5....
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170 views

Calculation of the Bid-Ask Spread on Bloomberg

I downloaded the bid-ask spread from Bloomberg, but did not check how they calculate them. Is it only the ask minus bid price or is it weighted in a way? I appreciate your help!
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What is a call-spread and its formula?

I am attempting Mark Joshi's The Concepts and Practice of Mathematical Finance. In B.3 Project 1: Vanilla options in a Black-Scholes world, he asked the following question. We need to be sure that ...
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52 views

Pair Trade - Should stock order matter

I am testing a simple pair trading algorithm and I'm having problems if I swap the stocks around. I don't know which stock should be X and which should be Y. When I swap them I get very different ...
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1answer
144 views

PDs for negative credit spreads

My question is about credit spreads and the corresponding probability of default (PD). One of the most simple relations between credit spreads and PDs is (see e.g. ch7 in Malz(2011)) $$ PD \approx \...
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How to calculate the interest rate under no arbitrage condition

We have two forwards with the same IBM share as the underlying asset. 1) The delivery date is two months from now, the forward price is 1.1 2) The delivery date is seven months from now, the forward ...
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433 views

The ETF trick - E-mini S&P 500 Futures

In Advances in Financial Machine Learning, Marcos Lopez de Prado talk about what he call the ETF Trick. I understand it is about building a time series from another time serie, with the aim to reflect ...
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84 views

Does it make sense to adjust a bond spread for price/coupon effects?

I have come across the practice, in the wild, of bond OAS being adjusted for the price of a bond. The idea expressed to me was something like the following. A $\$90$ corporate bond with a 10 yr ...
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50 views

Volatility spread of Strangle

It's written in a book by Giles Hewitt : " The bid-offer spread quoted on a Strangle in volatility terms will usually be wider than the ATM spread to the same maturity because strikes away from the ...
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35 views

Turning a spread always-positive for profit calculations?

I have a strange problem. I am running a backtest on a strategy whose signal is based on a spread. Naturally, a spread can go negative or positive. If I try to calculate the log return of a difference ...
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248 views

Relation between ATM, RR and BF

In FX derivative market, why does vol spread of ATM > RR > BF? ATM is the most liquid and intuitively it should have the lowest spread. Please help me in understanding the rational behind the above ...
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166 views

Understanding Front-End Spreads (terminology, lingo, convention)

Would appreciate a clear explanation as to what the OIS/Tsy spread and the TU OIS spread is. I've seen it being talked about in Wall St research reports but can't seem to find good explanations on ...
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368 views

Pair trading - short / long the spread

I am wading into pair trading concepts. Here is one article I've read. I understand for these strategies our intention is to go long on one asset and short another, however I do not understand what ...
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274 views

Basic question about swap/swap spreads

When I read up on swap spreads, the definition always goes something like this: The swap spread is the difference between the fixed leg of swap and a Treasury bond with the same maturity. So if the ...
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531 views

Pricing a callable bond

I have read the Lehman Brother's paper on OAS which I mostly understand, they outline how to find the OAS for a callable bond of which the formula is effectively (ignoring refinancing costs): Market ...
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43 views

How to convert a vector of bonds ZC Spreads into default spreads

If we consider a set of bonds issued by a given entity that are quoted on the market, one can get for each of those bonds a ZC spread on top of reference swap curve (say the bonds are in USD and so we ...
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96 views

Understanding the link between inflation and credit spreads

I found a paper which uses inflation as an independant variable for credit spread. Unfortunately, the relationship is not explained in this paper. Further research got my to the paper of Kang/Pflueger ...
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76 views

Return On a Spread

This is a beginner level question. I have a $spread = aluminium - 0.7*lead $ $s = a - 0.7*l$ I have two methods to calculate return on this spread: $ return = (s_t - s_{t-1})/(a_t + 0.7*l_t) $ ...
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146 views

Spread Duration weighted OAS vs. Mkt Cap Weighted?

I am curious what the differences might be in rolling up OAS spreads across a portfolio by duration weighting vs. mkt cap weighting. @Alex yes I meant S.D. weighted not Duration weighted
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512 views

Bid-Ask spread in Roll's model: Negative autocovariance of returns and informational content

Currently studying on techniques to estimate the bid-ask spread. Perhaps the most widely known model is the Roll model (1984). Let $P_t$ indicate log prices $\begin{cases} Bid_t=P_t-c, \\ ...
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1answer
121 views

Good References for Treasury Futures Spreads

I’m reading the excellent Treasury Bond Basis by Burghardt. I was wondering if there’s a similar quality book/paper about Yield curve spreads using treasury futures (i.e. NOL, NOB, FYT).
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215 views

How can I approximate the hedge ratio for Inter Commodity Treasury Spreads?

Looking at the excellent CME Treasury Analytics tool, I can see that the hedge ratio for spreads betweend diff treasury futures is derived from the DV01 of each leg. I can get treasury futures data ...
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256 views

Seagull Spread payoffs

I'm looking at different option strategies and the ways that their payoffs differ (and therefore how they can differently be used). I'm looking at the long seagull (buy a call spread and sell a put), ...
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1answer
386 views

Crossing the spread as a ML signal

In the optic of high-frequency trading, most of the standard trading algorithms work on the principle of mid-price prediction or mid-price movement prediction. However a big drawback of this technique ...
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2answers
150 views

Synthetic equity index futures calendar spread using options

I understand it is possible to synthetic a future using long call and short put ATM options which has the same expiry as the futures. Can we do the following to synthetic a future calendar spread? $...
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670 views

Getting over bid-ask bounce

One property of High-Frequency data is it's subject to bid-ask bounce. Description : Unlike traditional data based on just closing prices, tick data carry additional supply-and-demand information in ...
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1answer
226 views

How does an exchange guarantee both legs of a calendar spread are executed atomically to give a specific spread?

In commodities/oil you have monthly contracts for a given Future, e.g. on CME the Crude Oil Futures (CL) monthly contracts can be trades, and have Globex codes such as CLZ8(Crude Oil Dec18 Future), ...
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866 views

What causes the spread between WTI and Brent

Could anyone explain what leads to the spread between WTI and BRENT oil price, and what will be the upper limit of the spread to cause export of oil from US to other country.
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629 views

Duration split: treasury curve vs spread duration

I am looking at corporate bond (FR0013367620) in Bloomberg for which I have these values: DUR_ADJ_MID (modified duration performed using the yield to worst): 6.649 DUR_ADJ_OAS_MID (security's price/...
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0answers
36 views

Any Suggestion for Credit Risk Measure for Banking Industry in Turkey?

I need a measure that will proxy for overall credit risk in the banking industry of Turkey. The literature offers LIBOR-OIS spread and Moody's Baa-Aaa spread as strong candidates. However, these ...
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106 views

different Z-spreads for a same company

A same company has two different bonds. I expected the Z-spread to be close for both bonds (since my representation of the Z-spread is the spread due to credit-risk proper to the company). Here is an ...
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90 views

credit spread ajustment considering currency

I would like to understand what is credit spread basis currency ajustment. credit spread implied by a usd bond won't be the same as one implied by a chf bond, isn't it ? Do you have any elements (...