Sizing Futures Positions for Portfolio VaR
Summary
The document discusses how to represent long and short futures positions when estimating portfolio Value at Risk. One answer recommends converting contracts to notional exposure using the contract count, point value, and underlying futures level; it also represents a short position with a negative contract count. This captures the market value moved by each contract rather than treating the contract count alone as the exposure.
A second answer says that when reporting VaR as a notional amount, exposure should be based on absolute position sizes rather than netting a long and short position into a smaller net amount. These replies offer different guidance about signed positions, so the appropriate treatment depends on the VaR setup and whether the goal is to measure risk on a net portfolio or gross exposure. The document does not specify a full Monte Carlo model, address offsets between correlated contracts, or resolve that distinction.
Key ideas
- Futures exposure can be represented using contract count, point value, and the futures level.
- A short futures position can be encoded with a negative contract count in a signed portfolio representation.
- One answer recommends using absolute position sizes when expressing VaR as a notional amount.
- The appropriate treatment of long and short positions depends on the portfolio-risk calculation being performed.
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Full text
# Futures Parameters for Value at Risk # Futures Parameters for Value at Risk I am new to risk management. I am calculating the `VaR` for a portfolio of futures contracts, long and shorts. I calculated it using the historical, parametric, and MC method. But there is something which is not very clear for me when it comes to the parameters i take to calculate the `MC VaR`. I do a lookback on 270 days then generate my returns etc etc. But I have a doubt when it comes to the positions of my portfolio. How do you include that, you directly pick your position and fill your position matrix? I did that, but i think with this, you are missing the whole leverage aspect of the portfolio. How would include this leverage in this, by multiplying the number of contracts by each point value of each futures composing the portfolio, say 250 for SP 500 futures? Because right now, I feel my `VaR` figures a very low compared to the size of fictitious portfolio of around 10 million USD. I have some positions, and number of contracts( > 5 ) on each 7 lines of my portfolio. One last question, if i have a short position, i should just add a minus in front my position right for the VaR calculation right? ## Answer by Alex C (score 2) https://quant.stackexchange.com/a/19516 Yes, for futures I would use the Notional Value of the contracts for example Number of Contracts times 250 times S&P level for the big S&P futures, and similarly for other futures (50 for mini S&P, 1000 for Crude, 100 for Gold, etc.). And number of contracts is negative for a short position. ## Answer by AfterWorkGuinness (score 0) https://quant.stackexchange.com/a/21492 > One last question, if i have a short position, i should just add a minus in front my position right for the VaR calculation right? When calculating VaR and expressing as a notional amount (as opposed to a percentage), you always use the absolute value of the position. So if your portfolio consists of short 100 EUR and long 150 EUR you do not calculate VaR against 50 EUR, but 150.
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