Calculate the value of index future

Discussion in 'Technical Analysis' started by stock_trad3r, Jul 23, 2007.

  1. Ever wonder why the US future are up or down? One explanation is due to the corrlation between the foriegn markets and the US markets.

    The math is tedious and requires many pages

    We'll assume the Nasdaq closes x% on day one 1 at 4:00 PM and has a value of 'w'. Its coresponding ETF is the QQQQ and it assumed a value of 'z'

    Between 4 PM and 8PM the QQQQ ETF trades accounting for news or other events that happen after the market close.

    By 8PM the QQQQ has a new value 'z2' and the nasdaq future is now at w2. (if the nasdaq were to open it would trade at w2)

    Setting up the ratio euation

    w/z=w2/z2 solve for w2


    Setting 1-w/w2 gives percentage change for the nasdaq at 8pm

    Now it is time to move on to the asian markets. We'll assume there are five imporant asain indexes each of them holding size x1 x2...x5 and correlation to the nasdaq c1.c2..,..c5

    0 < Cn , Xn < 1

    The size is determined by the capitalization
    while the correlation is deterined by how closely it tracks the nasdaq

    A tiny asian index won't have the same impact on US futures as a much large index such as the neikki

    Likewise an index that diverges from the nasdaq won't count as much either

    The weight becomes: Weight =Cn*Xn

    1-w/w2 +x% =v is the percentage value gain/lossfor the nasdaq by 8PM based on QQQQ data and closing data

    In order for the nasdaq to remain at that lever the weighted mean value for the asian indexes must equate to v

    For example if the nasdaq closes up 1% and then rises another .1% by 8pm the weighted mean of the asian indexes must be 1.1% for the nasdaq future to remain stable.

    continued later...