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OK.. the compounded return for the index without dividends is about 7.5% -
that is WAY above the futures return (starts at 675 and ends at 1050 (about
1.75%) + the 2.3% compounded carry return for a grand measly total) of 4.05%
Why are these numbers so far apart (and I haven't even thrown in dividends)?
-----Original Message-----
From: Bob Fulks [mailto:omegalist@xxxxxxxxxxxx]
Sent: Tuesday, October 27, 2009 1:52 PM
To: Paratrade Systems LLC; Omega List
Subject: Re: Recreating the back adjusted vistorical number
I get these numbers:
SP 1.673% per year over 300 months ending 9/30/09
SPX 7.684% per year over 300 months ending 9/30/09
This is with no dividends on SPX
You are not allowing for the effects of compounding in your calculations.
This still does not look as if it matches but it is closer.
Bob Fulks
At 03:44 PM 10/27/2009, Paratrade Systems LLC wrote:
>A "prospect" is asking me to reconcile the futures contract with the index
>price. The back-adjusted contract should factor out (net) carry. If
>t-bills averaged (for 24 years) 4.35% and dividends averaged 2.1%, then net
>carry = 2.25%
>The back-adjusted contract rallied from 665 to 1052 for a gain of 58% or
>2.32%/yr. So total return = 2.25% +2.32% =4.57%/yr for 25 years.
>
>Here's the problem. The S&P index actually rallied from about 175 to 1052
>WITHOUT dividends for an average return of 24%!
>
>To get these 2 returns to match the fwd price of the index has to equal the
>start price of the back-adjusted contract but that would require a 5.5%
>carry for 25 years 175*(1+.055)^25= 667
>
>What am I doing wrong? Any ideas?
>
>CE
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