This tutorial on derivatives with R provides a conceptual and practical guide to analyzing derivatives instruments such as Futures Contracts and Options using the R programming language. The tutorial has a well balanced structure between theoretical concepts and practical examples and aims to show important properties of derivatives instruments using R. The first part of […]
Derivatives with R
How to Create Futures Continuous Series
Futures Contracts A future contract is a standardized contract with precisely specified contract terms. This contract is transacted between a purchaser and a seller. The purchaser of the future contract will receive the delivery of the goods and pay for it, while the seller of the futures contract is obligated to deliver the goods and […]
Exploring Crude Oil (CL) Future Data from Quandl in R
It would be useful to download a dataset of historical future contract prices and explore it using R programming language. For this purpose we will load the futures historical data of Crude Oil (CME_CL1) from the CHRIS database of Quandl. The nomenclature to download futures data from Quandl is the following: CHRIS/{EXCHANGE}_{CODE}{NUMBER} CHRIS refers to […]
R Visualization of Statistical Properties of Future Prices
Future contracts have some particular properties that make them a special assets class. In this article, we will learn about these statistical properties by visualizing them in R. Futures Prices have High Volatility and Distribution with Leptokurtic Shape First of all future contracts are well known for their higher volatility. The price distribution of future […]
Comparing Futures vs Spot Prices for WTI Crude Oil
In this post, we will be comparing the Futures vs Spot Prices for WTI Crude Oil, i.e., the WTI Futures series with the WTI Spot series. The futures prices generally show high volatility and they are more volatile than the underlying spot price. For this purpose, it would be interesting to compare future and spot […]
Different Parties in the Futures Market
The future market is composed of different types of agents that go to the futures market for a specific purpose. These agents raise the trading volume and open interest during the contract life. Overall the futures market is composed of speculators and hedgers. Speculators The speculators can be classified into market makers, day traders and […]
Creating Term Structure of Futures Contracts Using R
The terms structure of the futures contracts for a specific asset is generated by the contracts prices at different expiration times. The contracts have different prices on each expiration date and there is an underlying relationship between them that is reflected with different shapes. The most common shapes are called normal or inverted forms. These […]
Contango and Backwardation
The concepts of Contango and Backwardation are related with the term structure of the futures contracts. During the life of a contract, the difference between the futures price and the expected future price is called basis. At the end of the contract’s life, the futures price converges to the expected future spot price. Each month, […]
Exploring Open Interest for Futures Contracts with R
In this article we will explore in greater depth the Open Interest variable of the futures contracts price data and see in which months of the year this variable tends to increase for a particular contract. For this purpose, we have gathered contracts futures data from CSI 500 Shanghai Index. Our task will be to […]
Review of Options Contracts
Options are financial instruments that give the holders certain rights that they can exercise at the time of expiration. A call option gives its owner the right to purchase an underlying asset at a specified price and at a specific time. A put option gives its owner the right to sell the underlying asset at […]