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William:
You can do one of two things: Leave the gap and simply have that 20 point
difference. If you choose to do this, that would be pasting actual contracts
front month to front month, so make certain on prior contracts, you did not back
adjust in any fashion, but simply went from actual data on one contract, to the
next contract's actual data as your rollover method.
OR
You can re-adjust the entire series to reflect the different basis of the new
contract. Remember, it isn't just a gap. It's a change in the underlying basis,
so it takes more 32nds now to travel one percentage of interest rate. This is
what CSI did to their entire series: they adjusted all prior bond contracts to
reflect 6 percent coupons. The CBOT also had several good articles at their web
site, along with spreadsheets, that showed the impact of adjusting the coupons
from 8 percent to 6 percent.
I hope this helped.
Best,
Tim Morge
William Parks wrote:
> I am building a continuous bond contract and have a question regarding the
> change in December from 8% to 6%.
>
> The closing price for December contract was in the 111 range and the opening
> price for the March contact was in the 91 range. For charting purposes, do I
> leave this gap in the continuous contract or do I do a split (approx 1.2:1)
> to bring both contracts close to one another. I just want the data for long
> term charts, not back testing a system. It would be interesting to know what
> the data service providers did on their continuous contracts.
>
> Thanks,
>
> William
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