Mastering Attribution in Finance

18

Futures

18.1 Introduction

18.2 How futures work

18.3 Attribution on bond futures

18.4 Futures contracts on other fixed income securities

18.5 Heuristics for dealing with futures

18.1 INTRODUCTION

Futures contracts on bonds, or bond futures, are not complex, but tend to cause more difficulties in attribution analysis than any other asset class. The reasons include:

• their often substantial effective weights in managed funds, meaning that their contributions to return and residuals are typically much greater than individual stocks;
• the cheapest-to-deliver feature of bond futures contracts;
• ways in which optionality and noise in the price of the futures contract can distort attribution results.

For these reasons, any attribution scheme ...