Hi,Does commodity forward or futures have a theta? I can't see any books discussing this.This is the only discussion in Willmott about Futures Theta I can find in WilmottCommodity Future ThetaThanks in advance

A general problem may be that 'Greeks' are partial derivatives and model dependent -- without a model, what are the parameters that are being held constant?Having said that, I wonder if simply taking theta to be a one day move (toward expiration) along the current plot of future price vs time-to-maturity wouldn'tbe a useful general definition?My two cents.

QuoteDoes commodity forward or futures have a theta? No, people who buy/sell commodity futures don't talk about Theta. They may talk about basis, roll yield, shape of the curve, etc. As Alan points out, there are some conceptual analogies there. But in my experience, the word Theta is reserved for options.

Thanks Alan. This is what I thought myself. If we assume the simple forward formula Spot * exp(r*tau), then there would be a theta for the forwards.Hi Acastaldo, would it be any different if it is a commodity forward?

It depends how you hedge/report your risk. If you hedge with a Futures and a zero-coupon, then the zero-coupon absorbs some of the theta...

The way the forward (futures) curve is treated in many commodities is quite a bit more complex, so it's not quite as simple as exp((r-q)t). For starters, futures don't have any drift in the risk-neutral measure, so they have no "theta" in that sense. In some cases, you can't really even impute a "spot" asset to correspond with the futures because the deliverable is, say, a daily delivery over a whole month (natural gas), or not really easily storable (a train-car full of cows). This is why, of course, futures are so useful.

Alan, imputing "theta" from interpolating between futures prices (if that's what you're suggesting - I may be missing your point, of course) is also not a good idea for some commodities - particularly where there is strong seasonality (gas, most ags), the different futures aren't really comparable commodities because of e.g. storage constraints so it's not really meaningful to interpolate between them.

More interesting. Does Futures have Gamma? Convexity is where money is made. Old timers call it the tail wagging the dog.

Actually in risk systems like Murex, unless you remove daily margining you would not get a Time effect. This is because the values are taken to P&L daily. If you remove daily margining, then it is treated as a forward and therefore has a small amount of theta. Therefore all commodity futures other than LME don?t show theta in Murex.

Actually in risk systems like Murex, unless you remove daily margining you would not get a Time effect. This is because the values are taken to P&L daily. If you remove daily margining, then it is treated as a forward and therefore has a small amount of theta. Therefore all commodity futures other than LME don?t show theta in Murex.

QuoteOriginally posted by: thusiThanks Alan. This is what I thought myself. If we assume the simple forward formula Spot * exp(r*tau), then there would be a theta for the forwards.Hi Acastaldo, would it be any different if it is a commodity forward?Why would you assume Spot * exp(r*tau) for a commodity forward price?

Hi,if there is an underlying cash instrument (like in equity indices) the future price converges towards the price of this cash instrument at maturity. I would call this theta. If you have hedged your futures position with the underlying cash basket on the other side you generate (or pay) financing. As far as I know commodity futures do not have an underlying cash instrument (you may be able to calculate a theoretical implied cash - that's another discussion....). They trade independet. I would say that the theta of those commodity futures is 0.Gamma is reserved for options.Kind regards