Futures Pricing and Valuation Simplified

Discover the simplicity of futures pricing and valuation with Ryan O'Connell, CFA, FRM's easy-to-follow video, 'Futures Pricing and Valuation Simplified', using Excel for practical demonstrations. Dive into key concepts starting from the basics of futures prices, understanding Contango, to calculating the value of a futures contract, with real-time data from the CME Group. Perfect for beginners and those looking to refresh their knowledge, this video guides you through every step, marked with clear chapters, ensuring a comprehensive understanding of futures contract pricing.
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Chapters
0:00 - Futures Prices Explained
1:05 - How to Get Futures Prices from CME Group
1:45 - Contango Explained
3:10 - Futures Prices Changing Overtime
5:47 - Calculate the Value of a Futures Contract
*Disclosure: This is not financial advice and should not be taken as such. The information contained in this video is an opinion. Some of the information could be wrong. This channel is owned and operated by Portfolio Constructs LLC. Some of the links above are affiliate links, meaning, at no additional cost to you, I will earn a commission if you click through and make a purchase.

[@RyanOConnellCFA]

💾 Download Free Excel File: ► Download the file created in this video free here: ryanoconnellfinance.com/product/futures-contract-valuation-spreadsheet/ 🎓 Tutor With Me: 1-On-1 Video Call Sessions Available ► Join me for personalized finance tutoring tailored to your goals: ryanoconnellfinance.com/finance-tutoring/

[@Brian-ol6tn]

Please keep it up. I have been watching you for awhile. You have been improving your videos nicely since the first one.

[@RyanOConnellCFA]

Thank you for sticking around Brian! I have no plans on stopping 💪

[@sumanthasaha7207]

Hi Ryan, Great Video as Always. I am actually trying to calculate the relative volatility between a Govt. T-Bond and a stock index returns. Can you suggest if I should directly Divide the S.D. of Index returns by the S.D. of Bond returns. OR, I should first Normalise the S.D.s by ( S.D/ Mean) to get it as a % of the Average. Then divide both the S.D. to get the Ratio.

[@RyanOConnellCFA]

Hey! To calculate the relative volatility between a government T-Bond and a stock index, you can directly divide the standard deviation (S.D.) of the index returns by the S.D. of the bond returns. This will give you a straightforward ratio of volatilities. However, normalizing the standard deviations by their means (thus converting them to coefficients of variation) before dividing can provide a more relative measure, considering the scale of returns, but it depends on the specific analysis context and what you intend to infer from the volatility comparison.

[@kpopdaduk]

Hi mate, I was not sure what you meant by the contract was worth $0 to both parties, by my calculations the contract never went below around $200k. In Dec 2023, you committed to buy 100 troy ounces of gold for $203,520.00 In Mar 2024, you sold your commitment of 100 troy ounces of gold for $213,520.00 Netting +$10k (before any future value of money calculations & costs).

[@victoricus1]

Hello! So, "normaliztion" with exp is used to take into account the fact that prices will change (unexpectedly) for the April contract in the future? If not, then what is the point of Exp here?...still dont quite grasp the concept. Also, in you experience, is it worth reading John C Hall derivatives in addition to studying CFA curriculum? Or is it a bit too much and overly technical for CFA 1 students? I know there is a playlist by Mark Meldrum but I'm still not sure if it's going to be helpful or whether i wont be put off by unnecessary details. I'm not planning to follow a career of a pure bred quant guy.

[@RyanOConnellCFA]

Hey! I know "e" and the Excel "exp()" function can get a bit confusing at first! I remember getting confused by it when I was first learning these topics. "e" is just used as a way to discount the future value of a cash flow to the present value at a continuously compounded rate of interest. I have a full 14 minute video on this topic if you are interested here: kzbin.info/www/bejne/nKW7iWekj69nps0 Personally, while studying CFA exams I never went out of the curriculum much. The point being that there is so much to cover inside the curriculum that it is hard to find time for other things. I'd say focus on the curriculum for now rather than reading John Hull

[@victoricus1]

@@RyanOConnellCFA thank you!

[@RyanOConnellCFA]

@@victoricus1 My pleasure!