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

BBands bbands at gmail.com
Thu May 10 23:59:49 CEST 2012


I feel that reiterating my prior warning is worthwhile. The proper way
to do this is to analyze the actual contracts and roll just as you
would have to if you were actually trading; exit the current contact
when the crowd moves enter the new actively-traded front month and
account for each separately. I coded this in Python and it works well,
but I have yet to tackle futures in R. Some problems: In some
commodities not all months actually trade actively. Backwardation and
contango can impact the rolls dramatically. While analyzing months in
delivery may seem OK, traders avoid them. None of the shortcuts that I
know of comes even close to approximating the realities of the
marketplace. Most analysts (including most of the tblox crowd) simply
ignore these problems, analyze continuous contracts and are burned
when they enter the marketable.

Current example problem: Different crude contracts track different
delivery venues and are priced differently. Think WTI versus Brent,
spread truculently running tin the $10 range, which not too long ago
was thought 'impossible".

This is a very deep well.

Best,

John



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