# Questions tagged [spread]

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2answers
598 views

### Whites Reality Check for Pair Trading

I want to use the Monte Carlo Method described in Aronsons book Evidence based Technical Analysis to test if a given pairs trading strategy is useless. First step there is to randomize the returns of ...
0answers
2k views

### How to calculate yield spread?

I came across this multiple choice question on yield spread and I can't understand why the reasoning for the selected answer is correct.Can you confirm or clarify ? ( emphasis in the text is mine) ...
1answer
86 views

### Expected value of bivariate lognormal spread

I don´t know how to derivate the Expected Value for the following problem: Suppose that the random vector (S_1, S_2) has a bivariate lognormal distribution with ...
0answers
82 views

### Settlement/Spot/(bid ask spread) ratio

Are there any studies on the average difference or ratio between Settlement (execution price) and the Spot price dependant on lot size. I'm looking for a function such as ...
1answer
503 views

### Yield for valuation of illiquid corporate bond

I am trying to value a illiquid corporate bond issued at a discount to face value by a privately held company in India. The corporate bond is a sinkable bond (amortizing principle) with coupon rate of ...
0answers
40 views

### What does it mean to change the currency of a spread between bonds from 2 different countries?

On reuters I charted the spread between the 10yr US bond and the 10yr UK bond. It gives the me the option of choosing the currency. For just the standard spread(ie: yield(US)-yield(UK)) you select ...
0answers
426 views

### Forward Credit Spreads

I have a beginner question in credit quantitative modelling. I would like to know how we can derive forward credit spread curve, i.e the counterparty of forward yield curves. Indeed, for deriving a ...
3answers
789 views

### Spread over LIBOR on a Equity Swap

Does anyone how banks determine the spread over LIBOR on a Equity Swap? Example: Party A pays the return on SPTR to Party B Party B pays 1M LIBOR + 40 bps to Party A Does anyone know how the 40 ...
1answer
121 views

### Foreign exchange - Dealer spreads and order size

Is it true that in foreign exchange markets, dealer spreads are lower for smaller order and increases for larger orders? This seems counter-intuitive when compared to other markets where dealer ...
2answers
305 views

### Impact on bid/offer due to volume/size of trades placed

When observing bid/offer in the market I came across a question. How much trading a bond would impact its spread for subsequent trades ie. what is the impact on bid/offer due to volume/size of ...
0answers
26 views

### What to do when I do not get enough fill in cash leg during cash - future arbitrage

Futures have fixed lot sizes in my exchange, but cash do not. When I am spread trading the cash - future pair, what should I do if I am unable to get enough fill on the cash side.
1answer
697 views

### ZSpread in multiple curve framework

how do I calculate ZSpread for a govt. bond in a multiple curve framework? I have not come across the exact details anywhere so I want to verify if I'm right. Below is my understanding, please correct ...
1answer
174 views

### Binary option expression

Given r=0, σ(K)=const Binary=lim┬(ε→0)⁡〖((C(K,σ(K))-C(K+ε,σ(K+ε))))/ε〗 What is the analytical expression for the binary option value? σ(K)=const Therefore, Binary=lim┬(ε→0)⁡〖((C(K)-C(K+ε)))/ε〗 ...
0answers
1k views

2answers
359 views

### Avoiding negative spread in pairs trading

I'm constructing money-neutral spread by this formula: Spread = log(P1) - log(P2), where P1 and P2 is prices of two instruments But sometimes spread can get into ...
0answers
91 views

### Forecasting amount of slippage in executing option spreads

Is there a good quantitative model to estimate how much slippage is required to execute a particular option spread trade? For example, let's say you want to execute an Iron Condor. Given X, Y, Z ...
0answers
488 views

### Funding spread in FVA calculation

For the FVA calculation, is the funding spread (either borrowing or lending) treated as a piecewise constant function (i.e., if the length of the exposure is 5 month and I know the 3 and 6 months ...
1answer
1k views

### Interpolation on CDS rates

I am just wondering if there is any way we could calculate a CDS Spread (not harzard rate) on a CDS curve. Most of the papers that I have come across so far discuss about interpolating the hazard ...
0answers
1k views

### mean reversion with Kalman Filter - Spread calculation

Ernest Chan in its book "Algorithmic Trading" shows how to use the Kalman Filter for mean reversion pair trading. I have seen that he uses the measurement prediction error for calculating the spread ...
1answer
306 views

### How to synthesize a futures spread option?

Is it possible to synthesize a futures spread option using only the options on the spread's underlyings? If so, how? If not, is there another way? As an example, please show me how to synthesize ...
0answers
391 views

### pairs trading detrend the spread

I have calculated a hedge ratio that generates a mean reverting spread (stationary, without trends) 60-70% of the time. But the remaining 30% of the time, it seems like there is a trend in the spread. ...
1answer
157 views

### What happens at market open when there is a reverse spread during preopen?

During pre-open When checking the depth of one particularly bullish stock I am following (NZE:XRO went up 200% this year and 12% yesterday) I saw that the BUYs were much higher than the ASKs by about ...
2answers
487 views

### What is most reasonable approach to determine side of a multi-leg options order?

Say, 4-legged multi-leg options order with below leg ...
0answers
199 views

### Pre-Trade Slippage Costs For Option Spread Execution

Is there a quant model that can help estimate how much slippage one would have to give up in order to get an "option spread" (vertical, butterflies, etc.) order executed? What factors should one look ...
0answers
84 views

### Input for unanticipated risk premium estimation

In the paper "Economic Forces and the Stock Market" by Chen, Roll and Ross, unanticipated risk premium (URP) is tested as a potential risk factor for stock returns. This factor is commonly calculated ...
1answer
685 views

### Bond futures - calendar spread pricing

I am looking on literature and models on pricing a bond futures' calendar spread. assuming the basket of deliverable bonds is the same and the ctd is the same, what are the factores determining the ...
2answers
180 views

### monthly contract volume required for penny increments?

Have the exchanges disclosed their criteria? Does anyone have a best guess based upon observations of volume (however you wish to define it)? Please no qualitative answers.
1answer
278 views

### Model-implied yield spread on corporate bonds

While using Merton (or any other) model, is the model-implied yield spread on bonds greater than actual yield spread? And is it possible to estimate actual probablities of default?
1answer
535 views

### Is making a bid/ask offer a good way to lower the spreads?

I have written an algorithmic trading program which relies heavily on low spreads in the 0.1-0.3 PIP region. I was now wondering if it would be a good idea to place bid/ask offers instead of limit ...
2answers
2k views

### Where can I find corporate bond spreads?

I am trying to price a 30 yr bond maturing in December 15, 2035. The bond is rated A- (S&P). Where can I find the spreads for corporate bonds rated A- maturing in 23 years (December 2035)? I ...
1answer
2k views

### About Option Adjusted Spread, rate curves and bonds comparison

I have few questions about using OAS as a measure of risk: does OAS allow for comparison between bonds with and without embedded options (e.g. a callable bond against a plain vanilla one against a ...
2answers
3k views

### How to account for bid/ask spread when backtesting?

I'm backtesting an algorithm for trading nasdaq stocks, and would like to take into account the spread. I am using historical data from yahoo, which contains: open, high, low, close, volume, adj. ...
4answers
1k views

### How to compute interest rate futures spread ratio?

I am confused on how to compute the spread ratio. For example, this is example I came across with my broker - Consider 2 contracts Bobl and Euribor. The DV01 of Bobl i 44.8 and Euribor is 25. To ...
1answer
1k views

### How to calculate the weight of the stocks using the linear regression?

I do a simple example with the follow three series(stocks prices): ...
1answer
3k views

### How to hedge a bull call spread

I am trying to make a theoretical hedge to a bull call spread. (buy out the money call, sell further out the money call) What I have now is almost effective but there is one possible 80% loss (...
1answer
848 views

### How sensitive are vertical spreads to changes in implied volatility?

How sensitive are vertical spreads to changes in volatility / implied volatility in the money, at the money, and out of the money? I'm thinking for 1 point spreads this would be very small / neutral ...
1answer
110 views

### How Would You Categorize A Cap or Spread On A Monthly Sum Option?

I'm just trying to determine the appropriate naming convention for a category that holds cap or spread, or in other words, what category can I put cap and spread (in this context) into? Are they "...