Glossary — M06: Pricing and Valuation of Futures Contracts
Term
Definition
Futures price
The price at which the futures contract trades on the exchange; converges to the spot price at expiration
Futures value
The value of an existing futures position; effectively reset to zero each day after daily settlement (MTM)
Daily settlement (MTM)
The process of marking futures positions to the current settlement price each day, with gains credited and losses debited from margin accounts
Variation margin
The daily gain or loss on a futures position resulting from mark-to-market settlement
Margin call
A requirement to deposit additional funds when the margin account falls below the maintenance margin level
Realized MTM (mark-to-market)
The cumulative gain or loss on a futures position from daily settlements over its holding period
Contract multiplier
The dollar value per point move in the futures price (e.g., $250 per point for E-mini S&P 500)
Basis point value (BPV)
The change in the value of an interest rate futures contract for a 1 bp change in yield: BPV=Notional×0.0001×Period
Convexity bias
The difference between forward rates and futures rates arising from the daily settlement of futures; futures rates are slightly higher than equivalent forward rates for longer maturities
Price convergence
The tendency of the futures price to converge to the spot price as expiration approaches: fT=ST