Spread Values
Research Paper
November 1, 2005
Preview
The Research Monthly returns in November, after a summer break and a move across the Atlantic. In this month's note, we look at credit spreads in all their guises. We summarize a recent article that surveys many of the notions of spread that are used in practice, and that evaluates these notions from the point of view of a trader or investor. We argue that the needs of a risk manager are somewhat different. One of these needs is to communicate with traders, which suggests the risk manager should adopt similar spread notions. Other needs, particularly forecasting based on historical data, suggest additional characteristics for a "good spread", and may lead the risk manager to examining additional notions of spread.
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