Just a small vent today. I’m deep in the middle of creating my own series of continuous futures contracts, which is both dull and so very important that there’s nothing for it. I can understand why pre-made series (at least for intraday granularity) cost a fortune.
For those wondering what I’m talking about: futures contracts, like most derivatives, have a finite lifespan. If I want to go long the S&P 500, I might buy a March 2015-expiry S&P 500 future. So far, so good. The issue comes in backtesting quant strategies: one needs to ‘stitch’ these contracts together to create one series for long-term testing purposes.
But wait. It’s not quite that simple. Due to various factors, one frequently comes across big price jumps between 2 futures contracts. What to do? Depending on the use-case, there are multiple different adjustments that might be appropriate for creating the series. The most exotic sounding, to me, is the ‘Panama’ method…which is incidentally about the simplest adjustment out there.
Once I’m through downloading many millions of data rows, then back adjusting the futures contracts, I will finally have a time series with reasonable reliability. Then I just need to remember to keep up the process as life continues.
Perhaps another reason to leave the futures trading to paid professionals.