Type

Journal Article

Authors

John Cotter

Subjects

Business

Topics
requirements margin levels margins security trading stock index futures european extreme value theory g15 theoretical framework

Margin exceedences for European stock index futures using extreme value theory (2001)

Abstract Futures exchanges require a margin requirement that ensures their competitiveness and protects against default risk. This paper applies extreme value theory in computing unconditional optimal margin levels for a selection of stock index futures traded on European exchanges. The theoretical framework focuses explicitly on tail returns, thereby properly accounting for large levels of risk in measuring prudent margin levels. The paper finds that common margin requirements are sufficient for each contract, with the exception of the Norwegian OBX index, in providing equitable costs for traders. In addition, the paper shows the underestimation bias in margin levels that are calculated assuming normality. Differing margin requirements reflect the unconditional and conditional trading environments.
Collections Ireland -> University College Dublin -> Business Research Collection
Ireland -> University College Dublin -> School of Business
Ireland -> University College Dublin -> College of Business

Full list of authors on original publication

John Cotter

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John Cotter
University College Dublin
Total Publications: 93