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I'm interested in the term structure of CDS spread. It's known that the Market CDS rate (fair CDS spread or T-maturity spread) of a CDS contract initiated at $s$, maturity $T$ and recovery function $... 0answers 98 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 2k 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 ... 0answers 407 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. ... 0answers 648 views ### Replacement for Moodys BAA and AAA series Along with many other people, I have been using Moody's seasoned BAA and AAA corporate bond yield series for my research for some time. I use them primarily to compute and analyze the quality spread. ... 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) ... 0answers 208 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 91 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 ... 0answers 418 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, \\ ...
584 views

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 ...
35 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 ...
60 views

### Spurious regression between two futures with the same underlying highly correlated (cor=0.9)

analyzing the correlation between soybean and soybean meal futures in ECBOT, and making a linear regression in R between them I check with an ADF Test that the residuals are not stationary, so ...
1k views

### Free Data Source for Credit Spreads?

Credit spreads are a key economic indicator. They are the difference between yields on corporate and government debt. They are a measure of confidence in the private sector, they provide insight into ...
41 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 ...
535 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 ...
89 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 ...
28 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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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 ...
83 views

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 ...
124 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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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 ...
41 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 ...
138 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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I hope you can help me. I want to use the bid-ask spread of prices for 10yr treasury notes as a proxy for bond market liquidity. I got monthly aggregated bond price data (for yrs 1999-2013) from ...
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### Negative correlation between interest rates and credit spreads - Why?

In fixed income markets a stylized fact seems to be that there is a negative correlation between interest rates and credit spreads: Spreads tend to widen as rates fall. Why is that?
240 views

### How to calculate the volatility of a equity option spread

I would like to calculate the volatility of an equity option spread with all legs having the same expiration. Reading Option Volatility and Pricing 2nd Edition by Natenberg, Chapter 20, section ...
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I am new to the quant finance community... I have a series of bond cash flows, its market prices and also the spot rates for the timing of those cash flows. How to find the Z-Spread that matches its ...
356 views

### Bootstrapping bond spreads as in the standard CDS model

Suppose that we have a spread curve $\boldsymbol{s}:=(s_1, ..., s_n)$, where $s_i$ are CDS par spreads. Moreover, assume the standard ISDA model framework, i.e. piecewise constant forward / hazard ...
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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 ...
27 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.
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### 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 ...
48 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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### 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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### 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 ...