University of Sussex
Browse
texsubmissionSRO.pdf (3.93 MB)

A parsimonious parametric model for generating margin requirements for futures

Download (3.93 MB)
journal contribution
posted on 2023-06-09, 14:23 authored by Carol AlexanderCarol Alexander, Andreas KaeckAndreas Kaeck, Anannit Sumawong
Major exchanges employ the Standard Portfolio Analysis of Risk (SPAN) software to measure maintenance margins. However, its methodology has become cumbersome and opaque, having evolved over several decades and by now it requires that several hundred parameter values are re-set every day. We present a new, parsimonious parametric model for calculating margin requirements for futures which has a rigorous econometric foundation, being derived entirely from the median tail loss (MTL) of the returns distribution. This facilitates maximum likelihood volatility model calibration and state-of-the-art backtests. Then the parameters of the margin scheme which overlays the MTL may be calibrated using a variety of objectives. We examine three such objectives, including two which are designed to generate margins which mimic SPAN.

Funding

Optimality Criteria for Commodity Furtures Margin Requirements; G1480; GLOBAL RISK INSTITUTE; Catherine Lubochinsky

History

Publication status

  • Published

File Version

  • Accepted version

Journal

European Journal of Operational Research

ISSN

0377-2217

Publisher

Elsevier

Issue

1

Volume

273

Page range

31-43

Department affiliated with

  • Accounting and Finance Publications

Research groups affiliated with

  • Quantitative International Finance Network Publications

Full text available

  • Yes

Peer reviewed?

  • Yes

Legacy Posted Date

2018-08-07

First Open Access (FOA) Date

2020-08-20

First Compliant Deposit (FCD) Date

2018-08-07

Usage metrics

    University of Sussex (Publications)

    Categories

    Exports

    RefWorks
    BibTeX
    Ref. manager
    Endnote
    DataCite
    NLM
    DC