[R-SIG-Finance] Generating a front month only Time Series for Futures Prices

[G See]

If you just want to combine 2 series together, no problem:  use rbind.
 But, then you'll have a gap in your data on the roll date, and you'll
be back asking how to adjust for it. ;-)  That's where the minefields
come into play.

I look at roll cost like a dividend (which is often negative).  You
can adjust for it a couple different way.  You could add the roll
costs back to the series, which may mean negative prices in the past.
Or, you could multiply by an adjustment ratio (treat it like a split).

If you don't adjust for the roll, you'll have big gaps in your data.
Imagine buying the front month VIX future and rolling it each month.
10 years later, the VIX may still be at the same price, but you'll
likely have lost way more than you started with.

If you do adjust for the roll, either the oldest prices or the newest
prices may not be reasonable.

To get this back to R, let's get some code involved.
This is laying in the FinancialInstrument sandbox; I haven't
personally looked at it, so I don't know how it works.  Ditto for
FinancialInstrument:::slice and FinancialInstrument:::splooth
https://r-forge.r-project.org/scm/viewvc.php/pkg/FinancialInstrument/sandbox/continuousSeries.R?view=markup&root=blotter

If you just want daily data that has already been adjusted for you,
look here for code to download data from trading blox (it has Heating
Oil.. not gasoil though):
https://r-forge.r-project.org/scm/viewvc.php/pkg/FinancialInstrument/inst/parser/download.tblox.R?view=markup&root=blotter

I believe Trading Blox simply adds back the roll cost.  And, I think
they roll when Open Interest rolls.

source("http://r-forge.r-project.org/scm/viewvc.php/*checkout*/pkg/FinancialInstrument/inst/parser/download.tblox.R?root=blotter")

chartSeries(HO[, 8])  #unadjusted
addTA(HO[, 4], col='red', on=1) #adjusted

Or, are you looking for code to calculate the expiration dates of instruments?

What have you tried? ;-)

Garrett

On Thu, May 3, 2012 at 3:07 PM, gussinsky <sduve at hotmail.com> wrote:
> Hey Garrett,
>
> thank you for this, I had a read through this page in the book you
> referenced. And looking at Agricultural Commodities this makes a lot of
> sense. And if you look at Wheat and Corn on the CBOT, I think you only have
> 5 deliveries per year, hence the massive gaps when each contract rolls off.
> So here the interpolation makes sense, and I think one could approach this
> trade as a box.
>
> But lets consider for example heating oil again, here you have monthly
> deliveries, and the seasonality is far less nowadays, in Europe even less
> due to the increased Diesel consumption on the roads.
>
> But lets consider this:
>
> "Trading in a current month shall cease on the last business day of the
> month preceding the delivery month."
>
> This is the expiry rule for Heating Oil on the Nymex. I think this is
> codeable without minefields isn't it. It would be terrific if anyone could
> point me in the right direction on how to approach this.
>
> I think it wont be possible to download this with one simple function. I
> suspect one would have to store individual files for the respective expiry
> contracts, and perhaps index the file names. And then perhaps through a loop
> function could read out the corresponding 1:n values for each month, store
> them in an array, and then run the next month with the same rule, and store
> them again, etc....In the end one needs to connect all those arrays into one
> big time series.
>
> And here is my problem, I dont know how to code this, I know what I want....
>
> Many thanks for the advice so far....
>
>
> Best
>
>
> Gussinsky
>
>
> PS: Garrett, it is your Pair Trading code that brought this up my mind again
> :-)
>
> --
> View this message in context: http://r.789695.n4.nabble.com/Generating-a-front-month-only-Time-Series-for-Futures-Prices-tp4606794p4606979.html
> Sent from the Rmetrics mailing list archive at Nabble.com.
>
> _______________________________________________
> R-SIG-Finance at r-project.org mailing list
> https://stat.ethz.ch/mailman/listinfo/r-sig-finance
> -- Subscriber-posting only. If you want to post, subscribe first.
> -- Also note that this is not the r-help list where general R questions should go.