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There are two equations that help me understand this: 1) Gross Basis = Spot CTD Price - Conversion Factor * Futures Price If the Gross basis is positive, this means that it is a positive carry. In other words, buying the underlying CTD and delivering it against selling the futures results in a gain 2) Net Basis = Forward CTD Price - Conversion Factor * ...

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The market price of the roll (aka calendar spread) is defined as $$(\text{front contract price} - \text{back contract price}) \times 32,$$ where the ${}\times32$ part converts the price into "32nds," the standard quoting convention for Treasury futures calendar spreads. Estimating the fair value of the roll, in principle, is straightforward. We'd compute ...

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The futures price goes to the spot price as time to maturity declines, not vice-versa. The difference is referred to as basis. That's not really what roll yield is about though. The roll yield aspect is that as the contracts the ETF holds are expiring, they are close to the spot price. However, the next futures contract's price is higher than the price of ...

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For Interest Rate Swaps, IMM means the periods will be the third Wednesday of each quarter adjusted in following if needed. This means that the start and end dates of each period to compute your day count fraction will be using these dates. The fixing date however will be such as the spot is the IMM start date. This means that for GBP it will be the same ...

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I found the answer. The loss in value is due to the fact that the portfolio of 1st and 2nd month futures itself loses value before it is readjusted. So when the readjustment is made (at the end of the day or however frequently it happens) to maintain a 30-day weighted average, a very small (but not insignificant) amount of money is lost. It is not due to ...

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Futures roll can potentially create some short-term imbalances that distort market pricing. Whether or not that should be accounted for in curve construction is philosophical. In my mind, there's no reason to – you're building a market-based curve, and you shouldn't override the market. You can, however, build a separate "fair value" curve which incorporates ...

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The Var depends only on the daily changes in futures price. So you create a series of daily changes and you simply omit the day when the roll occurs.

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Ignoring delivery option and margining, then you can treat bond futures like a bond forward. Like any forward contract, fair values of bond forwards are determined by $$\text{forward price} = \text{spot price} - \text{carry}.$$ The calendar spread is therefore nonzero for several reasons: The underlying cheapest-to-delivers might be different, so both ...

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