Credit Spreads Oscillations

Abstract

A simple model is used to study behavior of a money market. The latter is viewed as an activity of investors placing orders to buy or to sell, and market-makers assigning prices to credit products. Under the assumption of a random fluctuation of demand and supply the credit market demonstrates some features of disequilibrium in its «physical» aspect. In terms of liquidity the persistent nonzero bid-ask spreads form the credit market compensatory effects. Thus the spreads dynamics are of the phase-locked (quasi)periodic nature, and in the high-frequency domain it could be studied as a non-uniform oscillator.