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Credit Spread |
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Credit spread Applies to derivative products. Difference in the value of two options, when the value of the one sold exceeds the value of the one bought. One sells a "credit spread." Antithesis of a debit spread Related: Quality spread.
Credit Spread What Does Credit Spread Mean? (1) The spread between Treasury securities and non-Treasury securities that are identical in all respects except for the quality rating. (2) An options strategy in which a high-premium option is sold and a low-premium option is bought on the same underlying security. Investopedia explains Credit Spread (1) For instance, the yields on Treasuries are lower than the yields on single A-rated industrial bonds because the Treasuries are backed by the full-faith and credit of the government and are rated higher; the Industrial bond is not. (2) An option credit spread example would be buying a Jan 50 call on ABC for $2 and writing a Jan 45 call on ABC for $5. The net amount received (credit) is $3. The investor will profit if the spread narrows. This also can be called a credit spread option or credit risk option. Related Terms: How to thank TFD for its existence? Tell a friend about us, add a link to this page, add the site to iGoogle, or visit webmaster's page for free fun content. |
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| ? Mentioned in | ? References in periodicals archive | ||
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| Credit spread is the spread between Treasury securities and non-Treasury securities that are identical except for quality rating. An appealing feature of this Bayesian hierarchical framework is that the knowledge of positive credit spread can be naturally incorporated into the model with informative priors. The index, combined with a credit spread of 175 basis points, has allowed owners to lock in long term fixed rates at approximately 5. |
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