Questions tagged [spread]

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1answer
3k views

Definition of spread duration

is there anyone who can explain the concept of spread duration, both from a mathematical point of view and an intuitive one? Providing a practical example would be highly appreciated. Thanks in ...
2
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1answer
2k views

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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0answers
294 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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1answer
129 views

Right expression for the semi-annually compounded credit spreads?

I'm familiar with the expression for a (continuously compounded) credit spread of the form $$ c(t,T) = -\frac{1}{T-t} \ln \frac{v(t,T)}{p(t,T)},$$ where $p(t,T)$ denotes the time $t$ price of a $T$-...
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1answer
243 views

How buying/selling pairs and entering/exiting trade works in pairs trading?

Lets say I have two stocks x and y and their corresponding stock price p(x) and p(y). consider HR as hedge ratio. Then we can calculate the spread using this equation. $spread=p(x)-HR*p(y)$ from ...
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1answer
914 views

Risky duration formula for what kind of bond?

In a documentation, there is the following formula for "zero interest rate risky duration" of a bond: $\frac{1-exp(-s \cdot T)}{s}$, where $s$ is spread, $T$ time until maturity. What type of bond (...
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0answers
302 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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1answer
64 views

calculate 6 month change in TED spread

I have a basic question if someone could help me out how would I calculate the 6 month change in TED spread. I have a monthly time series of TED spreads.
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1answer
46 views

Indexes and return spreads

First and foremost thank you for reading my question, I hope all if you have a Happy Holiday this weekend. On to my question: I am completing an assignment on global sovereign bonds, I've been ...
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1answer
689 views

Distribution of proportional bid-ask-spreads

I already asked this yesterday at "Economics Stack Exchange" but think this question might be better suited here. In the meantime i really tried to solve it by myself, but couldn't find anything what ...
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2answers
2k views

CDO tranche spread

An increase in default correlation ceteris paribus increases the value of the equity tranche of a CDO. This I get. How then, do I make sense of the statement that as default correlation in the ...
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1answer
330 views

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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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) ...
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1answer
89 views

Expected value of bivariate lognormal spread

I don´t know how to derivate the Expected Value for the following problem: Suppose that the random vector (S_1, S_2) has a bivariate lognormal distribution with ...
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0answers
85 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 ...
6
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2answers
313 views

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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1answer
123 views

Foreign exchange - Dealer spreads and order size

Is it true that in foreign exchange markets, dealer spreads are lower for smaller order and increases for larger orders? This seems counter-intuitive when compared to other markets where dealer ...
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0answers
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 ...
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1answer
316 views

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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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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0answers
2k views

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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1answer
769 views

ZSpread in multiple curve framework

how do I calculate ZSpread for a govt. bond in a multiple curve framework? I have not come across the exact details anywhere so I want to verify if I'm right. Below is my understanding, please correct ...
3
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1answer
184 views

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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1answer
1k views

Interpolation on CDS rates

I am just wondering if there is any way we could calculate a CDS Spread (not harzard rate) on a CDS curve. Most of the papers that I have come across so far discuss about interpolating the hazard ...
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2answers
381 views

Avoiding negative spread in pairs trading

I'm constructing money-neutral spread by this formula: Spread = log(P1) - log(P2), where P1 and P2 is prices of two instruments But sometimes spread can get into ...
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1answer
332 views

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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0answers
95 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 ...
2
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0answers
509 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 ...
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
398 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. ...
2
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1answer
159 views

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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2answers
502 views
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0answers
204 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 ...
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0answers
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
704 views

Bond futures - calendar spread pricing

I am looking on literature and models on pricing a bond futures' calendar spread. assuming the basket of deliverable bonds is the same and the ctd is the same, what are the factores determining the ...
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2answers
180 views

monthly contract volume required for penny increments?

Have the exchanges disclosed their criteria? Does anyone have a best guess based upon observations of volume (however you wish to define it)? Please no qualitative answers.
2
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1answer
291 views

Model-implied yield spread on corporate bonds

While using Merton (or any other) model, is the model-implied yield spread on bonds greater than actual yield spread? And is it possible to estimate actual probablities of default?
2
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1answer
552 views

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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1answer
2k views

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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2answers
3k views

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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1answer
1k views

How to calculate the weight of the stocks using the linear regression?

I do a simple example with the follow three series(stocks prices): ...
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1answer
859 views

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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1answer
111 views

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 "...