Skip to main content
Quantitative Finance

You are not logged in. Your edit will be placed in a queue until it is peer reviewed.

We welcome edits that make the post easier to understand and more valuable for readers. Because community members review edits, please try to make the post substantially better than how you found it, for example, by fixing grammar or adding additional resources and hyperlinks.

Required fields*

6
  • $\begingroup$ corn futures have notional underlying values. Some people trade corn futures not to speculate but actually buy or sell physical quantities of corn with an associated settlement of physical USD. you should use this. If you want an answer to a more esoteric question, check this link... quant.stackexchange.com/questions/41443/… $\endgroup$ Commented Oct 6, 2018 at 6:01
  • $\begingroup$ @Attack68, that may be the case for my corn example - but what about something like /ES? Wouldn't the point delta method be better because it includes the intrinsic leverage in the contract (under the assumption you dont take delivery on any contract...I suppose). $\endgroup$ Commented Oct 6, 2018 at 17:03
  • 1
    $\begingroup$ leverage is at your discretion. If you have \$20k and you sell 1 ES future do you record the same return as if you have \$100k and sell 1 ES future? Now you have the pertinent question about what you are using the data for. On the one hand if you are analysing market movements and correlation then you should not factor your leverage at all - remain standardised across products. If you considering daily returns from your portfolio's VaR perspective then your initial capital is entirely relevant and depends on the precise allocation of capital to each product. $\endgroup$ Commented Oct 6, 2018 at 17:14
  • $\begingroup$ A reasonable simplifying assumption IMHO is that you initially put up cash to fully cover the notional value of the contract (no leverage). Then the point change correctly measures the P&L on your investment. $\endgroup$ Commented Oct 6, 2018 at 17:16
  • $\begingroup$ Ah that makes sense. I guess I hadn't thought about either of these points. In backtesting a strategy I think the "portfolio method" @Attack68 mentions is right for that? However, since I could set capital limits on my backtesting I could simply set the capital in the account equal to the notional of one contract and then use the log returns directly. That simplifies my life and keeps things consistent in my head. If either of you would put this in an answer I'd happily provide the green check. $\endgroup$ Commented Oct 6, 2018 at 17:38