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.
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1$\begingroup$ Could you use the percent difference between the futures price and the spot? $\endgroup$– chrisaycockApr 27, 2013 at 1:20
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$\begingroup$ 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 AnnApr 27, 2013 at 19:12
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$\begingroup$ See e.g. VIX Central for an example of percentage difference, which yes, is a common numeraire. $\endgroup$– frankthesharkApr 28, 2013 at 23:31
1 Answer
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.
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$\begingroup$ I've edited your post to typeset the mathematical notation with $\LaTeX$. Please make sure I got it right. $\endgroup$ Apr 27, 2013 at 22:06