Spot vs Futures
Separate immediate physical value from exchange-traded future delivery.
Read the contractual cash flows first.
Storage, funding, convenience and delivery constraints connect spot and futures.
Separate immediate physical value from exchange-traded future delivery.
Express payoff and present value precisely.
Notation and units
Decimal rates and volatilities, year-fraction time and continuous compounding unless stated otherwise.
Make conventions part of the contract.
Contract dates, calendars, settlement, notionals and payoff currency are part of the valuation input.
Discounting and projection conventions must match the collateral and quotation framework.
The displayed payoff omits legal terms and lifecycle events unless stated otherwise.
“An unstated convention is a future reconciliation break.”— THEQUANTBATEMAN
Locate the quote and replication instruments.
Basis analysis, hedging and curve interpretation.
Map cash-flow changes into hedge risk.
Reconcile the contractual payoff before reading the COMM risk. Small date or convention changes can move cash flows before any model parameter moves.
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