| name | workflow-derivatives-futures-forwards |
| description | WHAT: Price futures and forward contracts using cost-of-carry; analyze basis, contango/backwardation, and roll yield; derive minimum-variance hedge ratios.
WHEN: Invoke for FX or commodity hedge sizing, futures basis trade analysis, cash-and-carry arbitrage checks, or any task requiring a defensible forward price and associated hedge ratio.
|
Futures and Forwards Pricing Workflow
What this skill covers
A structured pipeline for pricing forwards and futures across asset classes (equity index, FX, commodity, and fixed income) using the cost-of-carry framework. Covers basis analysis including contango/backwardation classification and roll yield quantification, plus minimum-variance hedge ratio derivation. Arbitrage bounds are verified for every price produced. Every number must originate from a tool call.
Workflow
Phase 1 โ Market Data Collection
- Spot price: call
fmp_quote for equity or index underlyings; use fmp_batch_commodity_quotes for commodity underlyings; use fmp_batch_forex_quotes for FX pairs.
- Risk-free rate: call
fmp_treasury_rates for the US risk-free rate at the forward tenor. For FX, also call fred_series for the foreign country policy rate or short-term benchmark rate.
- Carry cost components by asset class:
- Equity / index: dividend yield from
fmp_key_metrics or fmp_financial_ratios.
- FX: foreign interest rate from
fred_series; confirm interest-rate parity assumptions.
- Commodity: storage cost and convenience yield must be specified by analyst as input assumptions; document source (exchange settlement, industry convention, or analyst estimate).
- Fixed income: coupon accruals and repo rate from
fred_series (SOFR or GC repo).
Phase 2 โ Forward / Futures Pricing
- Generic forward: call
forward_pricer with spot, risk-free rate, dividend yield / convenience yield / storage cost, and tenor. Returns the fair forward price and implied carry rate.
- FX forward: call
fx_forward with spot FX rate, domestic rate, foreign rate, and tenor. Returns forward points and the all-in forward rate.
- Commodity forward: call
commodity_forward with spot, storage cost, convenience yield, risk-free rate, and tenor. Returns the futures fair value and carry breakdown.
- Existing position MTM: if pricing an existing forward (not a new trade), call
forward_position_value with the contracted forward price and current market inputs to obtain the MTM gain/loss.
Phase 3 โ Basis Analysis
- Call
futures_basis_analysis with the current spot price, observed futures settlement price, risk-free rate, storage/carry cost, and tenor.
- Tool returns: theoretical basis (fair value minus spot), actual basis (observed futures minus spot), basis error (actual minus theoretical), contango/backwardation classification, implied repo rate, and roll yield.
- Classify market structure:
- Contango: futures > spot (normal for financial assets with positive carry).
- Backwardation: futures < spot (indicates convenience yield exceeds carry; common in energy).
- Basis risk: document if actual basis deviates from theoretical by more than 0.5%.
Phase 4 โ Arbitrage Bounds Check
- Verify no-arbitrage boundaries:
- Upper bound: futures price โค spot ร exp((r + storage) ร T). If breached: cash-and-carry arbitrage exists.
- Lower bound: futures price โฅ spot ร exp((r โ convenience yield) ร T). If breached: reverse cash-and-carry exists.
- Document whether arbitrage bounds are satisfied or violated and the magnitude of any violation.
Phase 5 โ Hedge Ratio Derivation
- Compute the minimum-variance hedge ratio:
h* = ฯ ร (ฯ_S / ฯ_F) where ฯ is spot-futures correlation, ฯ_S is spot price volatility, ฯ_F is futures price volatility.- Source ฯ_S and ฯ_F from
fmp_historical_price for both series; compute realized vols over the hedge horizon.
- Compute the number of contracts required:
N* = h* ร (Portfolio Value / Contract Notional).
- Assess hedge effectiveness: an Rยฒ โฅ 0.85 between spot and futures returns is considered effective for accounting hedge designation purposes.
Phase 6 โ Roll Yield and Curve Analysis
- For commodity underlyings, call
commodity_curve to obtain the full forward curve across all listed tenors. Classify the curve as contango, backwardation, or humped and compute the annualized roll yield from front to second month.
Output Format
Forward Price Summary
| Parameter | Value | Source |
|---|
| Underlying | โ | Input |
| Spot price | โ | fmp_quote / fmp_batch_commodity_quotes |
| Tenor (days) | โ | Input |
| Risk-free rate | โ | fmp_treasury_rates |
| Dividend / convenience yield | โ | fmp_key_metrics / analyst assumption |
| Storage cost | โ | Analyst assumption |
| Fair forward price | โ | forward_pricer / commodity_forward |
| Implied carry rate | โ | forward_pricer |
| Observed futures price | โ | Market data |
| Basis (theoretical) | โ | futures_basis_analysis |
| Basis (actual) | โ | futures_basis_analysis |
| Market structure | Contango / Backwardation | futures_basis_analysis |
Arbitrage Bounds
| Bound | Value | Status |
|---|
| Upper bound (cash-and-carry) | โ | Pass / Violated |
| Lower bound (reverse carry) | โ | Pass / Violated |
Hedge Ratio
| Field | Value |
|---|
| Spot-futures correlation (ฯ) | โ |
| Spot vol (ฯ_S, annualized) | โ |
| Futures vol (ฯ_F, annualized) | โ |
| Minimum-variance hedge ratio (h*) | โ |
| Portfolio value | โ |
| Contract notional | โ |
| Number of contracts (N*) | โ |
| Hedge Rยฒ | โ |
Commodity Forward Curve (if applicable)
| Tenor | Forward Price | Roll Yield vs Prior |
|---|
Tool-Call Traceability
Quality Gates
Related Skills
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