Questions tagged [spread]

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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 $...
4
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0answers
94 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 ...
4
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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 ...
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0answers
395 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. ...
3
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0answers
635 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. ...
3
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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) ...
3
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0answers
440 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 ...
3
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0answers
203 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 ...
2
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0answers
85 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 ...
2
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0answers
282 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, \\ ...
2
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1answer
236 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 ...
2
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0answers
290 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 ...
2
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0answers
32 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 ...
2
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0answers
59 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 ...
2
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0answers
872 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 ...
2
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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 ...
2
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0answers
502 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 ...
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0answers
38 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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0answers
119 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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103 views

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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241 views

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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219 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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0answers
281 views

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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0answers
273 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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0answers
84 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 ...
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0answers
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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14 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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32 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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140 views

Interpreting the bid-ask spread calculated by the Corwin and Schultz (2012) method

On the homepage of Corwin (https://www3.nd.edu/~scorwin/) there is an excel spreadsheet which showcases the calculation for the bid-ask spread, which is expressed as a percentage. What is this a ...
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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 ...
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1answer
228 views

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 ...