[R-SIG-Finance] Generic versus calendar futures in trading models

[markleeds at verizon.net]

  i was actually referring to the older white one called a complete 
guide to the futures markets but i don't remember it being a standout 
book.
in fact, i probably didn't even read much of it.
i'd hate to recommend you to buy a WHOLE book to find out how to do the 
adjusted rollover. why don't you try googling for adjust futures price.
there has to be stuff on the internet. if you can't find it on the 
internet and don't want to buy the book, i may have some internet stuff 
at home
that i can look for tonight ?

basically the process is the following: ( take it with a grain of salt 
but this is what my memory tells me. i did this about a year or more ago 
so it's a little
fuzzy ).

suppose you have current contract prices

p1_current  p2_current   p3_current           pn-1_current 
pn_current

and suppose you have

next contract prices

                             pn-1_next       pn_next

where the indices denote the same dates.

when you calculate the returns for a contract, it's easy, (p_t - 
p_t-1)/p_t-1

but, when you are rolling over on say day n,  and you want to calc the 
return for that day, you can't do (pn_next - pn_current)/pn_next

because the prices change due to whatever ( cost of carry , 
backwardation ? ) but you don't get that price appreciation investment 
wise.

you need to calculate (pn_next - pn-1_next)/pn-1_next = return on day n 
even though it rolloed over on day n ( you use the n-1 next even though 
you are
rolling over on day n ).

so, then once you have this full stream of ADJUSTED returns for ALL 
contracts, then you can start at the beginning, call the price of 
wherever you are starting at

P_0 and calculate the prices as P_O*cumprod(1+r) where r is the return 
stream that accounts for the rollover weirdness.

Does this make any sense ? If not, of course you can buy schwager's book 
but I don't remember it being some amazing book. I just remember it
having what I just said in there somewhere ? Also, I'm sendig this to 
the list because there may be some detail tht i'm leaving out and maybe 
someone
can correct me. if that's the case. I really don't feel like I should be 
giving you an algorithm that could be a little off but atleast that's 
the basic idea.








On Wed, Nov 12, 2008 at 12:52 PM, Jorge Nieves wrote:

> Thanks
>
> Are you referring to this book?
>
> Schwager on Futures: Technical Analysis (Hardcover)
> 
> http://www.amazon.com/Schwager-Futures-Technical-Analysis-Jack/dp/047102
> 0516
>
>
> -----Original Message-----
> From: markleeds at verizon.net [mailto:markleeds at verizon.net] Sent: 
> Wednesday, November 12, 2008 12:50 PM
> To: Jorge Nieves
> Cc: r-sig-finance at stat.math.ethz.ch
> Subject: RE: [R-SIG-Finance] Generic versus calendar futures in 
> trading
> models
>
>
>   i don't know what exactly you're doing but to deal with that you 
> need
> to calculate the adjusted price ( adjusted return ) taking into 
> account
> the rollover or things will get totally whacked. how to do that is in
> schwager's book or probably any decent intro futures book. if you 
> can't
> find it, i can try to explain it but it's a little tricky and i bet a
> book can do better. essentially you calculate the daily returns not
> counting the rollover day ( you have to skip that one because that's 
> not
> a real return )  and then calculate the new adjusted prices based on
> those returns. then you use thos adjustede prices to do whatever 
> you're
> doing.
>
>
>
>
>
> On Wed, Nov 12, 2008 at 12:27 PM, Jorge Nieves wrote:
>
>> Hello,
>>
>> I am testing an econometric model for trading futures on commodities. 
>> I
>> am setting up the back-testing phase, but I am facing a  dilemma 
>> about
>
>> what is the best way to "easy" the transition for when futures mature 
>> into the next open contact. For now I am testing the model using the 
>> generic CL1 crude front contact. I would like to ensure that the 
>> rolling after maturity of each calendar contract does not generate 
>> false signals. Any one has any suggestion about what will be the best 
>> approach and why?
>>
>> Thanks,
>>
>>
>> Jorge Nieves
>>
>>
>>
>> 	[[alternative HTML version deleted]]
>>
>> _______________________________________________
>> R-SIG-Finance at stat.math.ethz.ch mailing list 
>> https://stat.ethz.ch/mailman/listinfo/r-sig-finance
>> -- Subscriber-posting only.
>> -- If you want to post, subscribe first.