Perpetual Futures Pricing

Perpetual futures are contracts without expiration date in which the anchoring of the futures price to the spot price is ensured by periodic funding payments from long to short. We derive explicit expressions for the no-arbitrage price of various perpetual contracts, including linear, inverse, and q...

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Bibliographic Details
Main Authors Ackerer, Damien, Hugonnier, Julien, Jermann, Urban
Format Journal Article
LanguageEnglish
Published 18.10.2023
Subjects
Quantitative Finance - Mathematical Finance
Quantitative Finance - Pricing of Securities
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Summary:Perpetual futures are contracts without expiration date in which the anchoring of the futures price to the spot price is ensured by periodic funding payments from long to short. We derive explicit expressions for the no-arbitrage price of various perpetual contracts, including linear, inverse, and quantos futures in both discrete and continuous-time. In particular, we show that the futures price is given by the risk-neutral expectation of the spot sampled at a random time that reflects the intensity of the price anchoring. Furthermore, we identify funding specifications that guarantee the coincidence of futures and spot prices, and show that for such specifications perpetual futures contracts can be replicated by dynamic trading in primitive securities.
DOI:10.48550/arxiv.2310.11771