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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 $...
Paul's user avatar
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4 votes
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115 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 ...
Liam's user avatar
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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 ...
pincopallino's user avatar
4 votes
0 answers
478 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. ...
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3 votes
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665 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. ...
farnsy's user avatar
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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 ? ( emphasis in the text is mine) ...
AfterWorkGuinness's user avatar
3 votes
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244 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 ...
delta hedge's user avatar
2 votes
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26 views

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 ...
Daniel Lobo's user avatar
2 votes
1 answer
432 views

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 ...
SuavestArt's user avatar
2 votes
0 answers
206 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 ...
DaWassi's user avatar
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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 ...
Onur Tekel's user avatar
2 votes
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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 ...
Gonzalo Federico's user avatar
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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 ...
DVCITIS's user avatar
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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 ...
julep's user avatar
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665 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 ...
AZhu's user avatar
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Is my spread calculation correct?

I have automated Pair trading strategies running on both CME Futures and cryptocurrency perpetual pairs. I can chose between different spread calculation type and I noticed that the one I thought was ...
Sixk's user avatar
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105 views

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 ...
Tom's user avatar
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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 ...
Ice Tea's user avatar
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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 ...
VVKK77's user avatar
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152 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 ...
Oliver P's user avatar
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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 ...
Parzival's user avatar
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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 ...
ecxnfmdnamdnrnrm's user avatar
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47 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 ...
confused's user avatar
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83 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 ...
NEO ULTRA's user avatar
1 vote
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106 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 ...
Idonknow's user avatar
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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 ...
Ussu's user avatar
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0 answers
53 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 ...
benjbe's user avatar
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213 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
Ryan's user avatar
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166 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 ...
neo_one's user avatar
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1 vote
0 answers
376 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?
arni's user avatar
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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 ...
Nel's user avatar
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647 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 ...
Sarat Muppana's user avatar
1 vote
0 answers
516 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 ...
Dello's user avatar
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1 vote
0 answers
115 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 ...
user3338098's user avatar
1 vote
0 answers
35 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.
Chani's user avatar
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0 votes
0 answers
34 views

Price display of weighted spreads via PCA and value changed

Using PCA I have the below PC1, first component weights, for 4 quarterly expiries of short term interest rate future. These are hypothetical values used to help my question. March: 0.005542604, June: ...
ChairmanMeow's user avatar
0 votes
0 answers
68 views

Is z spread always ‘better’ than nominal spread?

If nominal spread is the addition to the treasury yield at the WAL of the risky bond cashflows (to worst) necessary to make the npv of the cashflows equal to a given price, and z spread is the ...
slothish1's user avatar
0 votes
0 answers
82 views

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 ...
Kai's user avatar
  • 123
0 votes
0 answers
28 views

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 ...
Vanillihoot's user avatar
0 votes
0 answers
76 views

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....
Yoshiro's user avatar
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0 answers
76 views

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 "...
itachi23's user avatar
0 votes
0 answers
50 views

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 ...
statwoman's user avatar
  • 123
0 votes
0 answers
127 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 ...
Ant's user avatar
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0 votes
0 answers
48 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 ...
EMD's user avatar
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0 votes
0 answers
71 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 ...
ken4ward's user avatar
  • 101
0 votes
0 answers
84 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 ...
Don Chambers's user avatar
0 votes
0 answers
210 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 ...
CL40's user avatar
  • 171
0 votes
0 answers
97 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 ...
Mayou's user avatar
  • 662
-1 votes
1 answer
268 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 ...
jeff m's user avatar
  • 971
-2 votes
0 answers
39 views

Futures Spread Contract - How to Structure Risk to Reward

Futures Spread - Contract There is a Futures Spread, Where the Margin reflects a Leverage of 3 to 1 , The Margin for the contract is just $ 210. I ‘am Buying “ 1 Futures Contract September, Selling 1 ...
Calculate's user avatar
  • 109