Futures Spreading Greeks... Or just term structure greeks?

C

cdcaveman

I was wondering if anyone was familiar with ways or terms associated with futures terms structure.. For example.. Delta 1 = front month futures contract.. and the corrleation of preceding contracts measured from there, the Samuelson Effect, and various such ideas.. Are there greeks like in options or something similar to measure the various risks associated with trading spreads like futures butterflys, double butterflys, calenders, condors and the like? I imagine someone in there interest rate world would know more about this kind of thing..
Obviously futures have variation margin such that whatever you have up on margin doesn't mean anything relative to the amount of risk of ruin your taking.. What then describes your risks in these trades... Obviously with options i can tell you the change in volatilty risk, the directional risks through gamma and delta, and even the vvol risk.. How come options risk go out to almost the third order, yet we have no way or language to describe the term structure risks associated with futures?
 
There is a language... There are all sorts of factor models that can be generally applied to any given futures strip, e.g. PCA and its variants. There also more specific term structure models that can be used if you're looking at rates.
 
Great to see you still here Martinhoul... I've read a little about PCA ... Ill read more and report back... I'm wondering how one describes the changing risks in volatility of calendars as they migrate forward in time toward expiration and into more liquidity...
 
cdcaveman said:
Great to see you still here Martinhoul... I've read a little about PCA ... Ill read more and report back... I'm wondering how one describes the changing risks in volatility of calendars as they migrate forward in time toward expiration and into more liquidity...
More...
Well, let's leave liquidity out of it. Nobody knows how to deal with it properly, so it's a proper "unknown unknown".

As to the the changing volatility, that's precisely what all these factor models are about.
 
Martinghoul said:
You can google yourself, but here's something:
http://www.spiderfinancial.com/supp...ts/wti-futures-curve-analysis-with-pca-part-1
More...

"Historically, the oil futures curve is often found in backwardation, which means higher prices for short-term contracts than for long term contracts. This is often explained by a theoretical term called “convenience yield.” Convenience yield is conceptually similar to dividends in equity, where it favors physical possession of the stock over future delivery due to the dividend cash payments. In the crude oil market, convenience yield may signal market worry on future oil supply (or delivery), due to some geopolitical concerns and the tendency to favor holding the commodity now."


This article gives a very good explanation of backwardation.. which i've really never seen before.. "convenience yield" which i've never heard anyone describe.. just people randomly making assumptions about why oil is backwards..
 
we will compute the net of the interest rate, storage and convenience yield rates (i.e.
f1dc4f1fec49bbae746bf6726b4c21b6334e0146.png
), which can be expressed as follows:

21d27777ba5a215251bcd6a94ebbfee1e76005c5.png


soooo... are we trading the convenience yield rate... meaning we are trading the market desire to hold oil in the now in a backward environment.. such that we are trading the actual degree of convenience yield.. We would we not wanna solve for this variable, and look at this instead of the three factors as a whole as interest rates, and storage rates don't flux nearly as much.. or am i off in this assumption..
 
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