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Estimating Futures Mark-to-Market Losses with Volatility

Article Quant Q&A · Author: Sumit
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Summary

The document considers how to estimate potential mark-to-market losses when futures positions are rolled over the life of a structured product. The product described combines a bull put strategy with futures positions sized according to the options’ delta, and the trader wants to reserve enough cash to meet variation margin losses.

The response cautions that exact future mark-to-market results cannot be predicted and suggests using the contract’s historical volatility to produce an aggregate estimate. This offers a starting point for buffer planning, but the document gives no sizing formula, stress scenario, holding-period model, or treatment of changing volatility and market regimes. It does not establish that historical volatility alone is sufficient for a multi-year liquidity reserve.

Key ideas

  • Future futures mark-to-market losses cannot be predicted exactly.
  • Historical volatility can support an aggregate estimate of potential losses.
  • The estimate is intended to help plan a cash buffer for variation margin.
  • The response gives no specific method for translating volatility into a multi-year reserve.

Tags

FuturesVolatilityRisk management
Full text
# Can you predict MTM gain or losses on future contract?


# Can you predict MTM gain or losses on future contract?












I am working on a structured product where I am investing some percentage of invested amount in futures contract. I have created a bull put strategy and I will calculate the delta positions of that and take that many positions in the futures contract. Now I want to ensure I have enough money left as buffer to service the mtm losses. How should predict the MTM losses on futures contract If I am rolling over the contracts till the maturity of the product which is 2-3 years?

## Answer by ThatDataGuy (score 1)

https://quant.stackexchange.com/a/59460

If you could predict the exact MTM of futures contracts them, you could make a lot of money! ;-)

However, you could make an aggregate estimate by looking at the historical volatility of the contract.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.