Notional Value Depends on the Context of a Futures Position

Summary

The document addresses why a futures contract’s notional value can be difficult to define, using a Eurodollar futures position as the motivating example. Its main point is that notional is not necessarily governed by one universal formal definition. In practice, market participants may choose an equivalent notional measure to answer a particular portfolio or risk question, such as estimating exposure at the short end of a rate curve.

The response cautions that a convenient notional figure may not be the best measure of risk. For the example of combining futures exposure with other positions, the respondent says delta may provide a more useful comparison. The discussion is brief and gives no general calculation method or contract-specific derivation, so it does not settle the stated numerical discrepancy. The appropriate measure depends on what exposure the analysis is intended to represent.

Key ideas

• Notional may lack a single universal definition across contexts.
• A portfolio can use a context-specific equivalent notional to summarize a targeted exposure.
• The choice of measure should match the risk question being asked.
• Delta may describe futures-related exposure more usefully than an arbitrary notional for some aggregation tasks.

Tags

# Definition of notional for a future contract


# Definition of notional for a future contract












I just got into CME Eurodollar futures and I discovered that the notional value for that contract is considered to be 1 million \$.

I thought wrongly that it was 250 000 \$. I saw some explanations (3 months and not 12 months) but I'm not convinced since I don't know any precise definition of the notional for a future contract and I didn't find one. Do you know one that matches that result ?

Thank you !

## Answer by ThatDataGuy (score 2)

https://quant.stackexchange.com/a/60523

There's no formal definition as far as I know, although that doesn't stop people from trying to make one. Notional is a difficult concept to pin down, but in some cases it can make sense to make a arbitrary definition in a specifc context. For example I worked once with a risk manager who wanted to know roughly 'how long' the portfolio was at the short end. He wanted to aggregate that with the other non-futures positions so we made an equivalent 'notional' measure. Frankly, delta was a better measure.

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