Last month, I spent some time calculating the fair value of a futures contract in preparation for the current futures roll period.

I've backtested it and noticed that fair roll generally gives me an opposite signal. For example, if the fair roll (front minus back) is -2 ticks, I've noticed that the roll continues to cheapen more into the first notice period. I've spoken to the traders and they mentioned that sometimes it gives you the wrong direction and it is now driven by positioning data from institutional investors.

What good is using the fair value then?

  • 1
    $\begingroup$ Can you clarify the types of underlying products? $\endgroup$ – JoshK Feb 18 at 16:14
  • 1
    $\begingroup$ I built a model to estimate the fair value of a futures contract (Treasury). The naive method would be just simply taking the forward price of the CTD and adjusting it by the conversion factor. In reality, it's a weighted probability of the underlying basket of deliverables across different rate scenarios, which I've modeled. $\endgroup$ – VanillaCall Feb 18 at 21:02

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.