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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If the spread between two assets is an OU process, what processes do the two assets follow?
Let $(\Omega,\mathcal{F}, \mathbb{P}, (\mathcal{F}_{t})_{t\geq0})$ be a filtered probability space. Furthemore, let $(S_{t}^{1},S_{t}^{2})_{t\geq0}$ be two assets (adapted to filtration, etc). Define $...
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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 ...
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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 ...
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How to convert the CDS Upfront Fee into the Traded Spread?
If I know all the economics of a CDS trade included the Upfront Settlement Fee from the ISDA CDS Model, how can I convert that amount back to Traded Spead? Can some help explain the process?
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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 ...
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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. ...
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What causes the spread between WTI and Brent
Could anyone explain what leads to the spread between WTI and BRENT oil price, and what will be the upper limit of the spread to cause export of oil from US to other country.
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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 ...
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Downward Sloping Swap Spread Curve
After observing swap spreads in the market, I have noticed that the swap spread curve is downward sloping. Why is this? I have tried looking around the internet for answers, but have not found ...
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At-the-money Call Spread approximation
In a trading manual I got during a course, the value of the ATM Call-Spread is approximated by $CS_{ATM}=\frac{1}{2}StrD+(F-m)\times\Delta CS$
The lecturer skipped the part where he derived this ...
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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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Pair trading - short / long the spread
I am wading into pair trading concepts. Here is one article I've read.
I understand for these strategies our intention is to go long on one asset and short another, however I do not understand what ...
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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, \\
...
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What's the intuition behind DTS(duration times spread) in fixed income?
I am having some difficulty grasping the concept of using DTS to measure credit risk. In the equity world, one typical measure of risk is beta, which is quite well-defined as the exposure to a common ...
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Interpretation of OAS on MBS
I'm struggling a little with the interpretation of option adjusted spread on mortgage backed securities. I can see how, for a corporate bond without optionality, the z-spread is sort of like a ...
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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 ...
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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 (...
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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 "...
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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 ...
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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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FOREX: why does SPREAD peak at 22:00 gmt
I noticed that spread on currency pairs shoots up to 5x larger around 22:00 GMT. Then it slowly goes down back to normal levels around 23:00 GMT.
Does anyone know why?
thanks!
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Why there is no Bid Ask Spread in Futures Markets?
I heard that there is no bid-ask spread in futures markets. Could anyone explain why there would be no difference between the selling and buying price of a futures contract?
Thanks in advance!
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Why is G spread bigger than Z spread theoretically?
I am checking a few bonds on the YAS page on Bloomberg and I can see that G is higher than Z spread (this applies to bonds with optionality and bullet, too). As Z is stripped from reinvestment risk, ...
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Good References for Treasury Futures Spreads
I’m reading the excellent Treasury Bond Basis by Burghardt. I was wondering if there’s a similar quality book/paper about Yield curve spreads using treasury futures (i.e. NOL, NOB, FYT).
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Market Impact proportional to the bid-ask spread
Empirical studies have shown that market impact can be linked to the following parameters:
$$ \mathcal{I}(Q) = \kappa \ . \ \sigma \ . \ (\frac{Q}{V})^\gamma + \alpha \ . \ \psi_{BA} ...
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How can I approximate the hedge ratio for Inter Commodity Treasury Spreads?
Looking at the excellent CME Treasury Analytics tool, I can see that the hedge ratio for spreads betweend diff treasury futures is derived from the DV01 of each leg.
I can get treasury futures data ...
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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 ...
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Simulating Bid-Ask Spreads
I would like to examine the impact of the volatility on the transaction costs (Bid-ask spread). In my case I would like to examine this for power prices. However, I don't have access to actual order ...
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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 ...
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Pricing a callable bond
I have read the Lehman Brother's paper on OAS which I mostly understand, they outline how to find the OAS for a callable bond of which the formula is effectively (ignoring refinancing costs):
Market ...
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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 ...
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Intuition behind the tenor basis spread in basis swaps
Reading myself into basis swaps, I was wondering a couple of things. Say, one enters into a 1y - basis swap where party A agrees to pay 1M-LIBOR each month and party B agrees to pay 3M-LIBOR every ...
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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〗
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Short-term directional trading
Did value of ratio between informed and uninformed traders at market, making difference to profitability of short-term directional trading on that market?
My guess is yes and better play short-term ...
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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 ...
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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 ?
(
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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Intuition behind calendar spread max loss
With a calendar spread (buying back, selling front), max loss is defined as some variant of "maximum potential loss is the cost of opening the trade (Premium Paid − Premium Received = Total Debit)...
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Theoretical models for options bid-ask spread?
I'm a programmer and recent trading enthusiast. To learn more about options I'm building a market maker trading bot. So far it gets market prices and volatility and calculates the Black&Scholes. I ...
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How to trade interest rate futures calendar spread?
This has always been difficult to understand for me. How is the second futures contract valued in relation to the front month contract? My understanding is there are carry considerations (3 more ...
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Incorporating the I-Spread and Parallel Shift for Accurate Bond Pricing
I am currently working on pricing bonds and intend to utilize the S490 curve sourced from Bloomberg. This curve is constructed exclusively using swap rates. However, I have encountered challenges when ...
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Total Return Swaps and Borrow Cost Relationship
If an investor is long a Total Return Swap (TRS), they get the total return (ie, including dividend) performance and usually pay LIBOR minus a spread. This spread should trade ...
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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 ...
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What is most reasonable approach to determine side of a multi-leg options order?
Say, 4-legged multi-leg options order with below leg
...
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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 ...
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Modelling the instantaneous funding spread as a log-normal process
Let us consider a stochastic market model with a fixed short (risk-free) rate $r\in\mathbb{R}$. A trader can obtain unsecured funding at a rate $f_t:=r+s_t$ where $s_t$ is its stochastic funding ...
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