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Margin requirements with intraday dynamics
Author(s)
Date Issued
2004-06-14
Date Available
2009-06-09T15:27:13Z
Abstract
Both in practice and in the academic literature, models for setting margin requirements in futures markets use daily closing price changes. However, financial markets have recently shown high intraday volatility, which could bring more risk than expected. Such a phenomenon is well documented in the literature on high-frequency data and has prompted some exchanges to set intraday margin requirements and ask intraday margin calls. This article proposes to set margin requirements by taking into account the intraday dynamics of market prices. Daily
margin levels are obtained in two ways: first, by using daily price changes defined with different time-intervals (say from 3 pm to 3 pm on the following trading day instead of traditional closing times); second, by using 5-minute and 1-hour price changes and scaling the results to one day.
An application to the FTSE 100 futures contract traded on LIFFE demonstrates the usefulness of this new approach.
Sponsorship
University College Dublin. Michael Smurfit Graduate School of Business
Type of Material
Working Paper
Publisher
University College Dublin. School of Business. Centre for Financial Markets
Series
Centre for Financial Markets working paper series
WP-04-09
Copyright (Published Version)
2004, Centre for Financial Markets
Classification
G15
Subject – LCSH
Futures--Econometric models
Clearinghouses (Banking)
Extreme value theory
Language
English
Status of Item
Not peer reviewed
This item is made available under a Creative Commons License
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