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Isaac Carruthers
August 6, 2015
Isaac Carruthers
August 6, 2015
Class
Product
Electronic
Symbol
Bloomberg
Symbol
ADV
(Thousands)
STIR
Eurodollar
Three-Month Sterling
Three-Month Euro EURIBOR
Canadian Bankers Acceptance
GE
L
I
BAX
ED
L
ER
BA
2,488
490
337
94
Government Debt
US Ten-Year Note
US Five-Year Note
Euro-Bund
Euro-Bobl
US Two-Year Note
US Thirty-Year Bond
Euro-Schatz
Euro-BTP
US Ultra Bond
Euro-OAT
Canadian Ten-Year Note
Euro-Buxl
Short-Term Euro-BTP
ZN
ZF
FGBL
FGBM
ZT
ZB
FGBS
FBTP
UB
FOAT
CGB
FGBX
FBTS
TY
FV
RX
OE
TU
US
DU
IK
WN
OAT
CN
UB
BTS
1,140
713
678
410
293
292
228
84
76
72
66
31
18
Equity Index
ES
FESX
NQ
FDAX
Z
SXF
EMD
ES
VG
NQ
GX
Z
PT
FA
1,467
1,038
253
121
112
19
17
Energy
CL
NG
RB
HO
CL
NG
XB
HO
631
267
121
116
Foreign Exchange
Euro
Japanese Yen
British Pound
Australian Dollar
Canadian Dollar
Mexican Peso
Swiss Franc
New Zealand Dollar
6E
6J
6B
6A
6C
6M
6S
6N
EC
JY
BP
AD
CD
PE
SF
NV
241
151
98
96
63
42
32
19
Metal
Gold
Copper
Silver
GC
HG
SI
GC
HG
SI
151
56
37
Agricultural
Corn
Soybeans
Wheat
Soybean Oil
Soybean Meal
KC Wheat
ZC
ZS
ZW
ZL
ZM
KE
C
S
W
BO
SM
KW
263
184
105
91
77
24
Table 1: Futures products traded on CME, Eurex, ICE Europe (LIFFE), and Montral exchanges. Average daily volume is measured across one year from July 2014 through
June 2015. Colors are those used in Figures 1 and 2. We have divided interest rate
futures into short term interest rate (STIR) and government debt.
Isaac Carruthers
August 6, 2015
() =
1/
1
1 ()
If has the value 1/ for dierent indices and is zero elsewhere, so that the
weight is spread evenly across dierent maturities, then () = for > 0.
This motivates the use of the term eective number.
It is easy to see that () is increasing in and hence is decreasing in .
Smaller values of assign a more uniform weight to elements of the partition, giving
relatively more weight to less common elements. In the limit 0, converges
to the total number of nonzero .
Two values of in particular are in widespread use:
1 () = exp log is the exponential of the Shannon entropy, originally
developed for use in signal processing (Shannon [1948]).
2 () = 1/ 2 is directly related to the Simpson index in ecology and
to the Herndahl-Hirschman index in economics, after Simpson [1949] and
Hirschman [1945] respectively. The latter is used by the US Justice Department to evaluate the monopoly risk of proposed mergers.
For our study we prefer 1 , because of its theoretical elegance and because of its
focus on the broad distribution.
We therefore x our denition of eective number
e () = exp log .
This denition systematizes our intuitive ideas about the number of actively traded
contracts of a futures product, extending our ability to rank products by the diversity of their trades.
In this study we apply this construction to daily traded volume, normalizing the
values on each day so that the values for all contracts on the same product sum to
1. For the purple lines in Figures 36, we plot e as the value on each day. The
range of observed values of e for each product can be seen in Figure 1.
Isaac Carruthers
August 6, 2015
15
10
8
6
4
3
2
1
EMD
SXF
ES
NQ
Z
FDAX
FESX
R
FGBX
FBTS
FOAT
CGB
FBTP
UB
FGBM
FGBL
ZN
ZB
FGBS
ZF
ZT
6N
6B
6J
6A
6S
6E
6C
6M
SI
GC
HG
ZW
KE
ZC
ZS
ZL
ZM
RB
CL
HO
NG
BAX
L
I
GE
20
Symbol
Figure 1: Eective number of daily traded contracts for each product considered.
For each product we show the median (bold midline), center 50% interval (box), and
total range (whiskers) for the daily value of e for that product.
Empirical Findings As shown in Figure 2, government debt, foreign exchange, equity index, and precious metal products all trade a very small eective number of
contracts. These category A products are all almost entirely traded on just one or
two contracts, but show signicant variation in their average daily traded volume,
as shown by the spread along the vertical axis. Further right on the plot, category
B energy and agricultural products tend to be traded on 37 contracts, indicating
a more gradual roll period. Finally, the short-term interest rate products tend to
trade a high eective number of contracts, indicating that these category C products spread their trading activity relatively evenly over the available contracts.
Detailed Examination We can improve our understanding further by examining
detailed day-by-day graphs of daily traded volume and entropy. Data is compiled
from daily and end-of-day data from CME, Eurex, ICE Europe (LIFFE), and Montral
exchanges. In all of these graphs, the daily traded volume is shown by green or
gold lines and measured in thousands of lots, and the eective number of traded
contracts is shown in purple.
Figure 3 shows the 10-year Treasury futures contract (ZN), as an example of a
typical roll structure. This pattern is typical of government debt, equity index, and
Isaac Carruthers
August 6, 2015
GE
1M
100k
ES
ZN
FESX
ZF
FGBL
FGBM
ZT
ZB
ZC
NQ
6E
FGBS
ZS
R
6JGC
FDAX
Z
ZW ZL
6B
6A
FBTP
ZM
UB
FOAT
CGB
6C HG
6M
6SSI
FGBX
KE
6N
SXF
FBTS
EMD
CL
L
I
NG
RB
HO
BAX
10k
5
10
Effective Number of Traded Contracts
15
Figure 2: Eective number versus average daily volume. Category A products have
an eective number close to one, and cluster near the left of the graph. Other classes
of instrument can be accurately distinguished by their eective number. The vertical
dashed line marks an eective number of 1, which is the lowest value possible.
foreign exchange (FX) futures. On most dates, all the trade volume is concentrated in
the single front month contract. The entropy is near zero and the eective number
of contracts is one. Only around the roll periods is traded volume split between two
contracts. The eective number of contracts rises as high as two.
Figures 4 and 5 show the WTI Crude Oil (CL) and Corn (ZC) futures. These products show an intermediate roll structure, which is typical of energy and agricultural
contracts. In this structure, trade volume is divided among a handful of dierent
maturities, but divided in a predictable way which repeats itself from one roll period to the next. In these plots, December contract volumes are shown in gold to
highlight the seasonal variation in trading patterns.
Figure 6 shows the Eurodollar complex, which is typical of STIR products in having its traded volume distributed across a wide range of product maturities.
Conclusion By evaluating the entropy of a products traded contracts, we can quantitatively categorize the nature of that products roll-structure. This categorization
also strongly aligns with the class of the asset underlying the futures contracts. This
quantication of the roll-structure yields a useful tool for understanding the diverse
dynamics of dierent futures markets.
Mar '13
Sep '13
Jun '12
Jun-19
Mar-20
Dec-19
Sep-19
Jun '13
Mar '14
Jun-19
Mar-20
Dec-19
Sep-19
Thousands of Lots
1500
Jun-19
Mar-19
Dec-19
Sep-19
August 6, 2015
Jun-20
2000 ZN
Mar-21
Isaac Carruthers
Mar '15
Dec '14
Dec '13
500
0
Jun '12
Dec '12
Jun '13
Dec '13
Jun '14
1
Jun '15
Dec '14
Figure 3: Daily traded volume and entropy of 10-year Treasury futures. Daily traded
volumes are shown in green, and eective number of contracts shown in purple.
Grey vertical lines mark contract expiration dates.
Mar '15
Apr '15
May '15
Thousands of Lots
350
NovDec
'14 '14
Jan Feb
'15 '15
300
12
10
8
250
Jun '13
JulAug
'13 '13
Sep Oct
'14 '14
Sep Oct
'13 '13 Dec '13
NovDec
'12 '12
May '13
Nov '13 Jan '14 Mar Apr
'14 Jun
'14
'14
May
'14
'13 '13
Jan '13 Mar Apr
200
Aug '14
Jul '14
Feb '13
Oct '12
Feb '14
150
100
50
0
400
Sep-24
Oct-24
Nov-20
Dec-21
Jan-24
Feb-22
Mar-22
Apr-24
May-23
Jun-24
Jul-24
Aug-22
Sep-24
Oct-24
Nov-22
Dec-23
Jan-23
Feb-24
Mar-24
Apr-24
May-22
Jun-24
Jul-24
Aug-22
Sep-24
Oct-23
Nov-24
Dec-23
Jan-22
Feb-24
Mar-24
Apr-23
May-21
Jun-24
450 CL
0
Dec '12
Jun '13
Dec '13
Jun '14
Dec '14
Jun '15
Figure 4: Daily traded volume and entropy of crude oil futures. Daily traded volumes
are shown in green (December contracts in gold), and eective number of contracts
shown in purple. Grey vertical lines mark contract expiration dates.
Mar-13
Thousands of Lots
Mar '15
Dec '13
6
5
May '15
Dec '14
Mar '14
150
May-14
Dec-12
Sep-12
Jul-14
Mar-14
Dec-13
200 ZC
August 6, 2015
May-14
Isaac Carruthers
May '14
Jul '14
100
Sep '14
3
50
1
Dec '13
Jun '14
Dec '14
Jun '15
Figure 5: Daily traded volume and entropy of corn futures. Daily traded volumes
are shown in green (December contracts in gold), and eective number of contracts
shown in purple. Grey vertical lines mark contract expiration dates.
Jan-16
Feb-13
Mar-19
Apr-16
May-14
Jun-18
Jul-16
Aug-13
Sep-17
Oct-15
Nov-19
Dec-17
Jan-14
Feb-18
Mar-18
Apr-15
May-13
Jun-17
Jul-15
Aug-19
Sep-16
Oct-14
Nov-18
Dec-16
Jan-13
Feb-17
Mar-17
Apr-14
May-19
Jun-16
Jul-14
Aug-18
Sep-15
Oct-13
Nov-17
Dec-15
Jan-19
Feb-16
Mar-16
Apr-13
May-18
Jun-15
600 GE
20
400
Thousands of Lots
500
25
15
300
10
200 Mar '12
100
Jun '12
Mar '15
Mar '13 Jun '13
Sep '12
Dec '12
Mar '14
Sep '13 Dec '13
Jun '14
0
Jun '12
Dec '12
Jun '13
Dec '13
Jun '14
Dec '14
5
0
Jun '15
Figure 6: Daily traded volume and entropy of Eurodollar futures. Daily traded volumes are shown in green, and eective number of contracts shown in purple. Grey
vertical lines mark contract expiration dates.
Isaac Carruthers
August 6, 2015
References
M. O. Hill. Diversity and evenness: A unifying notation and its consequences. Ecology, 54(2):427432, March 1973.
A. O. Hirschman. National Power and the Structure of Foreign Trade. University of
California Press, expanded edition, 1945. ISBN 0-520-04082-1.
L. Jost. Entropy and diversity. Oikos, 113(2):363375, 2006.
C. E. Shannon. A mathematical theory of communication. The Bell System Technical
Journal, 27:379423,623656, July and October 1948.
E. H. Simpson. Measurement of diversity. Nature, 163:688, April 1949.
Disclaimer This document contains actual performance results achieved, but past performance is
not necessarily indicative of future results. Trading futures and options on futures involves signicant
risk and may result in unlimited losses. Futures trading is not suitable for all investors. QB oers
execution services to institutional investors exclusively.