Projection Rates and Basis for Perpetuals and Futures

By:

Cloudwall Research*

January 22, 2024

Explore how perpetual and futures contracts are priced and how these mechanisms affect the broader digital asset markets. This analysis introduces projection rates and basis numbers, offering critical insights for portfolio managers and traders seeking to refine their risk profiles in a dynamic market.

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Analysis

Projection Rates and Basis for Perpetuals and Futures

By:

Cloudwall Research*

January 22, 2024

Introduction

Abstract: This paper delves into the computational aspects of risk management in digital assets, specifically the risk associated with perpetual contracts on digital assets. We begin by integrating perpetual contracts into a general simulation framework, highlighting the two primary variables: the underlying asset price and the basis multiplier. The study presents detailed derivations of risk simulation formulas for perpetual futures, encompassing both linear and inverse contract types. A practical case study is conducted featuring a portfolio strategy that involves a long position in bitcoin coupled with a short position in an inverse perpetual contract on bitcoin. The paper culminates in a comprehensive analysis of the numerical results, focusing on risk and gain metrics, and unveils an asymmetric risk profile inherent in such investment strategies.

Download the full research paper to explore the numerical results and learn more about strategies for managing risk with perpetual futures.

*Note: Cloudwall and the technology behind its Serenity System were acquired by Talos in April 2024. Learn more.

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