Decay

Updated by Sameer Soleja

Decay is one of two features in Molecule that work to accurately show a position that reduces during the delivery month (the other is Cascading). Decay essentially takes a monthly product and computes a virtual position (and realized/unrealized value) that rolls off each day based on the number of days that have passed (and priced). Decay can be enabled for Products that:

  • Are monthly frequency
  • Expire at or after the end of the tenor/contract/flow month
  • Decay (or shrink position) on a predictable schedule by business day, by calendar day, or hourly based on power blocks
  • Have a daily "settle" product to reference for realized pricing.

Decayed values show in-line with normal position and realized/unrealized data. In other words, turning on decay does not affect the number of line items a trade generates in reporting. Decayed values show up in these columns:

decayed_position 
decayed_realized 
decayed_unrealized

Note that the decayed_position field actually represents the remaining open position (that has shrunk), not the position that has priced. To get the priced quantity, you'd have to calculate unit_quantity - decayed_position.

Exchanges and Decay

Exchanges handle intramonth trading in two ways:

  • Intramonth trades will often be made as strips of dailies, each of which settles the day of flow (or the day after)
  • Sometimes, exchanges publish monthly trades that expire at the end of the flow month. In those cases, they typically build settles into the price that is published each day of the month (such that on the 14th of April, the end-of-day price will contain:
Avg(14 daily settles) + (16/30 * April Monthly)

In those cases, Molecule can still provide a decayed position -- but because decayed realized/unrealized values will be incorrect, we do not recommend doing so.

Considerations

Decay calculations require valuation to run. That is, if a trade has not valued for a day (or if its decay-product's price is unavailable), decayed fields will not be accurate.

Setting it Up

Not all eligible products in Molecule's library are set up for decay. If you'd like to see a product decay (and it's not), contact our Customer Success team to get it set up. You may need to provide the daily price and schedule that will trigger the decay.

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