How Futures Maturity Affects Risk and Volatility

Summary

The document asks whether futures on the same bond or equity index have different risk profiles when they mature on different dates. The answer says maturity effects depend on the underlying and the length of the available futures curve. For equity index and bond futures, contracts are described as trading only a few months ahead, so differences in dynamics between near and deferred contracts are generally small and rolling is characterized as relatively calm.

The answer contrasts those markets with Eurodollar interest rate futures and commodity futures. Their longer expiration ranges or more pronounced term structures can lead deferred contracts to behave quite differently from front contracts. The practical lesson is that an underlying-only risk mapping may be a rough approximation for some contracts, but maturity can matter when exposures extend across a longer or more varied curve. The response is qualitative: it gives no volatility estimates, risk model, or specific contract examples beyond the named asset groups, and the claims should not be read as universal across markets or periods.

Key ideas

• Futures on the same underlying can have different risk depending on maturity and market.
• Near and deferred equity index or bond futures are described as having relatively similar dynamics when maturities are only a few months apart.
• Interest rate and commodity futures may show larger maturity-related differences because their curves extend farther or have stronger term structures.
• The answer offers qualitative guidance rather than a quantitative method for measuring maturity-specific risk.

Tags

# Impact of the maturity date of a future on its risk


# Impact of the maturity date of a future on its risk












At work we use a system called FIS APT for risk management. I am trying to get my head around it and I noticed that futures are set-up by simply telling the system what is the underlying index (for example a T-Note or CAC 40).

It surprises me that no information on the maturity / settlement date is required. In your opinion, do tzo future contracts on the same underlying Bond or Index maturing two different future dates have different risk profile / volatility?

Thanks

## Answer by dm63 (score 1)

https://quant.stackexchange.com/a/37404

In the case of Equity indices or bond futures , the longest contracts traded are only a few months out, and the difference between the dynamics of these versus the front contract are small. In other words , the "roll" is not volatile.

In the case of Eurodollar interest rate futures, which are liquid up to 10 year expirations, or commodity futures, which can have significant term structures , there can be very different dynamics between the back contracts and the front contracts , so it does depend what underlying you are looking at.

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