Futures modelling#

This page explains how variation margin is handled in relation to futures contracts used on the SigTech platform.

Units on the SigTech platform#

Futures positions on the SigTech platform are held in number of units, which is not the equivalent to contracts or lots. When a position in a futures contract is initiated, the number of units are derived from the following formula:

\[\mathrm{Units}_{Future} = \dfrac{\mathrm{Notional}}{\mathrm{Strike}_{Future}} \times {\mathrm{Weight}}\]

where

\(\mathrm{Strike}\_{Future}\) is the close price of a strategy-dependent Open-High-Low-Close price bar
\(\mathrm{Notional}\) is the nominal value of the position, for example expressed in USD
\(\mathrm{Weight}\) is the percentage of AUM which the strategy aims to allocate

Valuation of a position#

Once a futures position has been entered into, the valuation in USD of that position can be expressed with the following formula:

\[\mathrm{Valuation}_{USD} = \mathrm{Price}_{Future} \times \mathrm{Units}_{Future} \times \mathrm{FX}_{USD}\]

where:

\(\mathrm{Price}_{Future}\) is the latest close price available at a given point in time
\(\mathrm{Units}_{Future}\) is the number of units held in that asset
\(\mathrm{FX}_{USD}\) is the exchange rate from contract currency to USD

Valuation offset of a futures position#

Since the valuation of a futures position is calculated in accordance with the above formula, the position has a non-zero valuation at inception; an offsetting position needs to taken for the portfolio to be valued appropriately.

In light of this, the SigTech platform uses a Margin Spot Account to create an offsetting position with a valuation of the inverse of the futures position. The following formula is used to calculate the offsetting margin position:

\[\mathrm{ValuationOffset}_{Future} = -\mathrm{Units}_{Future} \times \mathrm{Price}_{Future}\]

Valuation adjustments#

When dealing with futures contracts, the investment strategies apply valuation adjustments on a continuous basis, such as daily, which includes adjusting for variation margin or mark-to-market. The valuation offset gets applied by crediting/debiting the valuation offset and debiting/crediting the portfolio cash account if a futures position increases/decreases in value.

Example valuation offset#

Note: unless otherwise specified, ‘CASH’ positions accrue interest overnight at the Central Bank level for the designated currency. In this example ‘CASH’ is set to not accrue interest; this can be achieved by applying total_return=False to your strategy.

Day 0

Investment portfolio is empty apart from a USD 1,000.00 cash position.

Day 1

Researcher seeks 50% exposure to CLZ15 COMDTY, which currently trades at USD 100.00. The investment portfolio at inception of the trade:

Asset	Valuation (USD)	Units	Value (USD)
`CLZ15 COMDTY`	500.00	5.00	100.00
`CLZ15 COMDTY VALUATION OFFSET`	-500.00	-500.00	1
Cash USD	1,000.00	1,000.00	1

Strategy NAV: USD 1000.00

Day 2

The price for CLZ15 COMDTY moves to USD 105.00. The investment portfolio before the valuation offset is applied:

Note: this intermediate step is not displayed in the portfolio methods; it is for illustration purpose only.

Asset	Valuation (USD)	Units	Value (USD)
`CLZ15 COMDTY`	525.00	5.00	105.00
`CLZ15 COMDTY VALUATION OFFSET`	-500.00	-500.00	1
Cash USD	1,000.00	1,000.00	1

Strategy NAV: USD 1025.00

The investment portfolio after the valuation offset is applied:

Asset	Valuation (USD)	Units	Value (USD)
`CLZ15 COMDTY`	525.00	5.00	105.00
`CLZ15 COMDTY VALUATION OFFSET`	-525.00	-525.00	1
Cash USD	1,025.00	1,025.00	1