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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1answer
42 views

Credit spreads adjusted for rating migration and default

Given the below 1-year rating transition matrix and cumulative default rates, I am interested in calculating credit spread adjusted for defaults so I can compare this with the outright credit spread. ...
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27 views

Spread duration curve by issuer or by sector

I was surprised to see that spread duration was not offered as a curve in Bloomberg. As a result, I'm trying to find a curve (in Bloomberg) or build a curve (maybe using the Excel API) which ...
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49 views

Is there an equation that gives you the optimal spread width or strike prices when opening a vertical options spread?

On a specific leg, when going to open a spread is there an equation that can tell me at what strike price I should sell at and what strike price I should buy at? I look at this options calculator ...
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26 views

Bond VaR with z-spread

I want to calculate VaR for bonds using historical z-spread changes. I want to apply the changes to the present day z-spread, reprice the bond and obtain the PnLs from which I can calculate VaR. But ...
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73 views

Option Adjusted Spread - Monte Carlo

It's my understanding that in order to calculate the option adjusted spread on a mortgage backed-security, the following steps are required: Run a Monte Carlo simulation of interest rates Project ...
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29 views

Spread betting risk management in backtesting in Python

My background is in Spread Betting. I know how to calculate my position size based on how far away my stop is from my entry, I calculate the amount per pip so that I only ever risk a fixed percentage ...
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41 views

tick data: does this data look wrong? what am I missing?

I can't seem to understand how tick data works. Below is some tick data for a certain security (I got this data from a platform called MetaTrader). At 09:56:28 someone offered to sell at \$9.9. But ...
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1answer
129 views

Survival probabilities starting from CDS spreads

How is that possible to get survival probabilities starting from CDS spread? Could you please provide me with a demonstration? What is more, is that true that CDS Zero type is necessary so as to get ...
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33 views

Estimating midpoint or realized spread from trade by trade data without order book data

I am looking to estimate the realized spread defined as $$ \text{realized spread} = 2D_k(ln(P_k) - ln(M_{k+5})) $$ Where $D_k$ is 1 for buy transactions and -1 for sell transactions. $P_k$ is the ...
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17 views

Bid-ask spread using transactions data [duplicate]

In the absence of quotes data, I'm looking to calculate the realized bid-ask spread using (high-frequency) transactions data. Is there a standard method of doing this? Many thanks.
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2answers
138 views

What prevents market-makers to do speculative trades with much better conditions than other traders?

Market-makers gain profit from the bid-ask spread. This means that they could place speculative positions without any cost (they pay the spread to themselves = zero cost). I assume there are laws ...
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55 views

Market maker hedging model

I understand that most market makers maintain non directionality i.e. they always aim to be perfectly hedged. So if they take a long position in X, they will take an offsetting short position in a ...
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33 views

comparing volatilities of 2 different commodities when no delta is provided

If I wanted to compare the relative volatilities of options on 2 different commodities, but the deltas are not provided, is it sufficient to compare by the % each commodities strike is in or out of ...
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1answer
65 views

Spread and volatility

I look for any references where one consider how bid-ask spread depends on volatility (may be it is more correct to say 'volatility measure'). I would be grateful for any references.
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37 views

ETF bid/ask spread [duplicate]

I was just wondering if someone could explain to me how an ETF market maker earns profit through the spread they collect while hedging the positions to be non-directional. For example I read somewhere ...
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1answer
210 views

Corwin-Schultz estimator of bid-ask spread

I am reading a paper "A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices" cf.A Simple Way to Estimate Bid-Ask Spreads from Daily High and Low Prices The authors proposed ...
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1answer
71 views

How to calculate bid/ask spread for an index?

I am trying to calculate implicit transaction costs for a newly launched portfolio, as per the definition from ESMA: "transaction costs may be calculated either by multiplying an estimate of ...
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1answer
54 views

Cap/Floor on a SpreadOption grid

I have a spread option data from a broker. The rows are the following : STK ATM -0.5 -0.25 ... and the values are forward price ( the strikes used are absolute strike and the value of the raw STK is ...
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1answer
532 views

Asset Swap Spread

A Bond's Asset Swap Spread is defined as the difference between Bond's Yield and the Risk free rate. Then I was told that, the Present value of the Bond's Asset ...
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1answer
83 views

How does this formula for the price of a bond in terms of forward rates work?

I am currently reading Chapter 3 of Tuckman's 'Fixed Income Securities' and it states that we can write the price of a bond using its term structure in terms of forward rates but with periods of ...
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4answers
232 views

Downward Sloping Swap Spread Curve

After observing swap spreads in the market, I have noticed that the swap spread curve is downward sloping. Why is this? I have tried looking around the internet for answers, but have not found ...
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2answers
71 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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70 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
309 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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1answer
134 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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2answers
811 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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36 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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1answer
198 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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1answer
108 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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1answer
43 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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1answer
97 views

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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1answer
148 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
121 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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31 views

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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1answer
45 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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55 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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17 views

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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1answer
502 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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42 views

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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56 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
189 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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1answer
827 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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1answer
189 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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54 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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37 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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1answer
449 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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1answer
385 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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572 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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1answer
315 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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1answer
727 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 ...