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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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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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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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 credit spread from rating
I've been trying to calculate the credit spread of a financial institution with a Fitch rate of A.
By using the transition matrix (https://www.fitchratings.com/web_content/nrsro/nav/NRSRO_Exhibit-1....
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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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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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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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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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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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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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Return on investment in spreads
I have a hard time getting my head around this.
Let's say you have a strategy that consists in buying one future spread, for instance CL Z7-Z8 (crude oil dec17 minus dec18). It's easy to calculate the ...
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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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weird stationary pattern in LDO.MI's stock price
how to describe this pattern in Leonardo Finmeccanica's share price (observed here)? It is a fairly liquid stock, but the price seems to alternate between ca. 8 and ca 13!!
Does anyone know what ...
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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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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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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 ...
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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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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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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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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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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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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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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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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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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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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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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 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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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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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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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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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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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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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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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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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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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 ...
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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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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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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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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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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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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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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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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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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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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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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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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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