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Article: A margin scheme that advises on when to change required margin

TitleA margin scheme that advises on when to change required margin
Authors
KeywordsClearinghouse
GARCH model
Implied volatility
Margin in futures market
Volatility forecasts
Issue Date2010
PublisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ejor
Citation
European Journal Of Operational Research, 2010, v. 207 n. 1, p. 524-530 How to Cite?
AbstractThe purpose of a margin requirement is to protect a clearinghouse from members' defaults resulting from big losses due to adverse movement of futures prices. To decide on how much a margin is required, a clearinghouse may refer to a benchmark margin defined as a constant multiple of the forecasted volatility. However, a benchmark margin only advises on a desirable margin level. It gives no advice on whether a clearinghouse should alter existing required margin. This paper proposes a margin scheme that can advise on when to change the required margin and if a change is recommended, to what level it should be changed. The proposed margin scheme can be devised so that the coverage probability and change frequency are controlled at target levels deemed appropriate by the clearinghouse. The proposed margin scheme needs a volatility forecast as input. This paper shows that among a large number of volatility forecasts, implied volatility gives the best results. This confirms a conjecture that implied volatility may have more information content than other volatility forecasts as far as margin setting is concerned. © 2010 Elsevier B.V. All rights reserved.
Persistent Identifierhttp://hdl.handle.net/10722/125414
ISSN
2015 Impact Factor: 2.679
2015 SCImago Journal Rankings: 2.595
ISI Accession Number ID
References

 

DC FieldValueLanguage
dc.contributor.authorLam, Ken_HK
dc.contributor.authorYu, PLHen_HK
dc.contributor.authorLee, PHen_HK
dc.date.accessioned2010-10-31T11:30:02Z-
dc.date.available2010-10-31T11:30:02Z-
dc.date.issued2010en_HK
dc.identifier.citationEuropean Journal Of Operational Research, 2010, v. 207 n. 1, p. 524-530en_HK
dc.identifier.issn0377-2217en_HK
dc.identifier.urihttp://hdl.handle.net/10722/125414-
dc.description.abstractThe purpose of a margin requirement is to protect a clearinghouse from members' defaults resulting from big losses due to adverse movement of futures prices. To decide on how much a margin is required, a clearinghouse may refer to a benchmark margin defined as a constant multiple of the forecasted volatility. However, a benchmark margin only advises on a desirable margin level. It gives no advice on whether a clearinghouse should alter existing required margin. This paper proposes a margin scheme that can advise on when to change the required margin and if a change is recommended, to what level it should be changed. The proposed margin scheme can be devised so that the coverage probability and change frequency are controlled at target levels deemed appropriate by the clearinghouse. The proposed margin scheme needs a volatility forecast as input. This paper shows that among a large number of volatility forecasts, implied volatility gives the best results. This confirms a conjecture that implied volatility may have more information content than other volatility forecasts as far as margin setting is concerned. © 2010 Elsevier B.V. All rights reserved.en_HK
dc.languageengen_HK
dc.publisherElsevier BV. The Journal's web site is located at http://www.elsevier.com/locate/ejoren_HK
dc.relation.ispartofEuropean Journal of Operational Researchen_HK
dc.subjectClearinghouseen_HK
dc.subjectGARCH modelen_HK
dc.subjectImplied volatilityen_HK
dc.subjectMargin in futures marketen_HK
dc.subjectVolatility forecastsen_HK
dc.titleA margin scheme that advises on when to change required marginen_HK
dc.typeArticleen_HK
dc.identifier.openurlhttp://library.hku.hk:4550/resserv?sid=HKU:IR&issn=0377-2217&volume=207&spage=524&epage=530&date=2010&atitle=A+margin+scheme+that+advises+on+when+to+change+required+marginen_HK
dc.identifier.emailYu, PLH: plhyu@hkucc.hku.hken_HK
dc.identifier.authorityYu, PLH=rp00835en_HK
dc.description.naturelink_to_subscribed_fulltext-
dc.identifier.doi10.1016/j.ejor.2010.04.028en_HK
dc.identifier.scopuseid_2-s2.0-77953869244en_HK
dc.identifier.hkuros180112en_HK
dc.identifier.hkuros183254-
dc.relation.referenceshttp://www.scopus.com/mlt/select.url?eid=2-s2.0-77953869244&selection=ref&src=s&origin=recordpageen_HK
dc.identifier.volume207en_HK
dc.identifier.issue1en_HK
dc.identifier.spage524en_HK
dc.identifier.epage530en_HK
dc.identifier.eissn1872-6860-
dc.identifier.isiWOS:000280220100056-
dc.publisher.placeNetherlandsen_HK
dc.identifier.scopusauthoridLam, K=36492945700en_HK
dc.identifier.scopusauthoridYu, PLH=7403599794en_HK
dc.identifier.scopusauthoridLee, PH=35362305200en_HK
dc.identifier.citeulike7167002-

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