Premium Index is used to raise or lower the next Funding Rate to maintain the contract price (Last Traded Price) to be aligned to the spot price. This is because the Last Traded Price of the Perpetual Contracts can be traded at a premium* or discount* from the Mark Price.
*Premium: Last Traded Price > Mark Price
*Discount: Last Traded Price < Mark Price
Premium Index Equation
$$ \textsf{Premium Index} = {\textsf{(Max(0, Impact Bid Price* - Mark Price) - (Max(0, Mark Price - Impact Ask Price*))}\over\textsf{Spot Price}}+\textsf{Funding Basis} $$
\begin{align}&\scriptsize\textsf{Impact Bid Price* = The average fill price to execute the Impact Margin Notional on the Bid side}\\&\scriptsize\textsf{Impact Ask Price* = The average fill price to execute the Impact Margin Notional on the Ask side}\end{align}
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