Australian Govt Futures

General discussions about futures.
Post Reply
ADMP
Roundtable Fellow
Roundtable Fellow
Posts: 60
Joined: Wed Jul 04, 2007 9:04 am
Location: Germany

Australian Govt Futures

Post by ADMP » Thu Sep 13, 2007 3:36 am

Hi,

the SFE 10y treasury bond future is quoted as (100-yield). I think that it is what you get in CSI #381 or #616. The SFE gives the formula on its internet site to convert the yield in price.
Do CSI or Tradingblox make the conversion for this SFE contract or do you have to convert yourself before any test or p&l calculation?

Tim Arnold
Site Admin
Site Admin
Posts: 8501
Joined: Tue Apr 06, 2004 1:41 pm
Location: Boston, MA
Contact:

Post by Tim Arnold » Fri Sep 14, 2007 9:59 am

Not sure about CSI. Trading Blox assumes the OHLC price in the data file is in fact the OHLC.

ADMP
Roundtable Fellow
Roundtable Fellow
Posts: 60
Joined: Wed Jul 04, 2007 9:04 am
Location: Germany

Post by ADMP » Fri Apr 18, 2008 6:03 am

Does anybody trade Australian bond futures?
The price of the 10y future is quoted as 100-yield. But it is not what you pay. The SFE gives a formula on its internet site to translate the yield in the value of a contract: http://www.sfe.com.au/content/sfe/products/pricing.pdf
Another problem is that the coupon of the 10y treasury bond used in the calculation changed in the past. It is now 6%. It was 12% before.
Any experience with these futures?

Alexandre

sluggo
Roundtable Knight
Roundtable Knight
Posts: 2986
Joined: Fri Jun 11, 2004 2:50 pm

Post by sluggo » Fri Apr 18, 2008 7:27 am

Yes it is sometimes annoying that Exchanges often create contract definitions which suit the convenience of their biggest customers (commercial traders) quite well, but make life difficult for small speculators who use one-size-fits-all trading software. The interest rate products on SFE (that you mention) are one example, the forward contracts on LME are another. My personal favorite example of The Ugly Contract Specification is ICE Natural Gas (link). Just try to figure out how to tell Blox or AmiBroker or Mechanica or WealthLab or PowerST or (God Forbid) Tradestation, the Variable Parcel Size algorithm that makes BigPointValue fluctuate up and down. Just try.

One ugly and inelegant "solution" that kinda half-ass works, is Incredible Diversification. If the Aussie 10-Year Bond "YTC" is just 2% of your portfolio (i.e. if you're trading >50 markets), then inaccuracies in its BigPointValue are going to have a very small effect on your total account equity. Your calculated open trade profit for positions in YTC will be inaccurate, so your total account equity will be inaccurate, so your position size for new entries will be inaccurate. But since YTC is a very small part of your total trading, the inaccuracies will be small and you may deem them "acceptable".

A simplified example: say you're trading 50 markets and risking 1% of equity on each trade. Say the BPV of the Aussie interest rate contract "YTC" fluctuates by (let's overestimate it:) 20%. Say you've got a really great trade underway in YTC with a huge 10R profit. How big is the error in open trade equity? (10R profit, times 1% risk) means the open trade equity of this YTC trade, is 10% of total account equity. Thanks to BPV inaccuracy, you're off by 20%. 20% of 10% is 2%. So your calculated total account equity in dollars, is wrong by 2%. Position-sizes are being calculated using a total account equity that is off by 2%, so those position sizes are "wrong" by 2%. Can you live with this?

By the way, let me remind you that inaccuracies in BPV can only affect the magnitude of the open trade equity, they can't affect the sign. In other words, BPV inaccuracy can't turn a profit into a loss or a loss into a profit.

ADMP
Roundtable Fellow
Roundtable Fellow
Posts: 60
Joined: Wed Jul 04, 2007 9:04 am
Location: Germany

Post by ADMP » Mon Apr 21, 2008 5:31 am

Thanks Sluggo.
I was hoping for a better solution, but I see that I will have to do without it.

Post Reply