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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A model to stochastic hazard rate and CDS spread term structure
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 $...
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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 ...
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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 ...
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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. ...
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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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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. ...
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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 ?
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emphasis in the text is mine)
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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 ...
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Interpretation of data for Market Premium
I am given some preliminary data with a goal to estimate the probability of default. This data consists of Market premium for different tenors.
One such example ...
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FRTB Delta CSR vs Delta GIRR
In Basel III, FRTB SA includes different market risk capital requirements for interest rate (GIRR §21.19) and credit spread risk (CSR §21.20) exposures. These are different risks, as credit spreads ...
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How fast is the forex market regenerated?
I'm doing some statistics in order to evaluate the Forex market profitability.
I first define what I call "regeneration of the market".
For example, the following fictive order-book of ...
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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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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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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 ...
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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 ...
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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 ...
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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 ...
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How To Construct A Volatility Spread Position?
Is there a simple way to spread the volatility of one product against another? By simple I mean one trade executed on each leg rather than constant delta hedging.
I can see a lot of opportunity for ...
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Graph of price of CDS against par spread
I'm new to credit and I'm trying to wrap my head around the following idea. I understand that the par spread $s$ is the value of the fixed coupon payment at which the fixed and floating legs are equal ...
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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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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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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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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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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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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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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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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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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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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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Bond liquidity: why do I observe constant bid-ask spreads?
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?
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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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Find Z-Spread in R
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 ...
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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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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 ...
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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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Combination of bid ask of two instruments
You have 2 instruments: X in which you are quoting 35 @ 40 and product Y in which you are quoting 15 @ 30. We want to make a market on the product X+Y. What is the bid-ask spread you will quote?
Got ...
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Determine Dependent Variable Product
Let's say I have three products that are correlated (e.g. AAPL, MSFT, and AMZN). I would like to construct a spread between these products and trade the mean-reverting spread. Specifically, sell the ...
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CDS Basket Kth to Default and Recovery rates
I am trying to determine the effect of recovery rate on the Kth-to-default CDS Basket made up of 5 names (all major investment bank names). I repeatedly change the recovery rate assumption from 0 to 1....
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what is the problem of using asset swap spread to compare bonds
people use asset swap spread to compare bond relative values (rich/cheap).
is there a known issues or anything that needs to be aware of when using swap spread to compare relative value of bonds?
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Beta Neutral Spread in Pairs Trading
I was looking for the methods of calculating spread in pairs trading and I come across this answer from Jacques Joubert in which he said that $\text{Stock Price}_A- \text{Stock Price}_B*\text{Hedge ...
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Liquidity Rebate
I have one question regarding the liquidity rebate that liquidity providers receive. I've read on investopedia that it refers to the traders/investors who place limit orders since they then "...
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Shock to a system of CDS spread values
Assume we have a system that is built on the CDS spread values. If we want to shock the system, how can we define the shock? For instance, we can define it as the increase in the spread. Of course a ...
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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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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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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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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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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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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 ...
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Is it possible to hedge Spread Risk on a Forward Swap?
You can enter a forward swap to eliminate interest rate risk, but the spread risk still exists when the swap actually goes into effect. My goal is to convert a floating rate credit facility that will ...
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