1
$\begingroup$

I am trying to do pair trading on a pair of future contracts, e.g. CME gold and silver.

During the training of my trading model, I do forward adjustment on the pair of future contracts. Let the forward adjustment of a future contract be delta.

My question is, when I test my trading model live, do I need to do forward adjustment of the live data?

I think I need to, for example, let us assume I use 100 days of training data. Maybe on the 90th day, there is a forward adjustment of cme gold, which the raw price on the 90th day is 80, and the forward adjusted price on the 90th day is 100 (which means the delta is +20). Note that there is no forward adjustment of cme silver on 90th day. On the first day of the live testing, the raw price may be 70, so I need to add delta=20 to get the forward adjusted price of 90.

$\endgroup$
  • $\begingroup$ It's worthwhile to add some context on what a forward adjustment is, and why it comes up, so that a novice in commodity futures can have that additional context. A link to a detailed explanation would be sufficient. $\endgroup$ – glyphard Dec 9 '14 at 15:55
  • $\begingroup$ @glyphard quant.stackexchange.com/questions/7246/… $\endgroup$ – Michael Dec 9 '14 at 16:37

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.