Is there any unit of measure for the magnitude of the contango (or backwardation) for futures, so you can compare the contango of many symbols.
4
-
1$\begingroup$ Could you use the percent difference between the futures price and the spot? $\endgroup$ – chrisaycock Apr 27 '13 at 1:20
-
$\begingroup$ In some paper I've seen these ways: 1) $log(f_{10})-log(f_{3})$, where $f_{t}$ stands for the future value at time $t$; 2) the value of the 2nd principal component of the term structure. $\endgroup$ – Lisa Ann Apr 27 '13 at 19:12
-
$\begingroup$ See e.g. VIX Central for an example of percentage difference, which yes, is a common numeraire. $\endgroup$ – franktheshark Apr 28 '13 at 23:31
8
$\begingroup$
$\endgroup$
Just take something like
$$ \frac{\log{\frac{F_j}{F_i}}}{t_j - t_i} \times 365 $$
where $t_i$ denotes the expiry (or alternatively delivery) date of future $i$. The annualization is so you can compare different futures.
-
$\begingroup$ I've edited your post to typeset the mathematical notation with $\LaTeX$. Please make sure I got it right. $\endgroup$ – chrisaycock Apr 27 '13 at 22:06
