A parsimonious parametric model for generating margin requirements for futures

Alexander, Carol; Kaeck, Andreas; Sumawong, Anannit

doi:10.1016/j.ejor.2018.08.006

Cited by 13 publications

(4 citation statements)

References 61 publications

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“…Goldman and Shen (2020) construct a three-regime threshold autoregressive model, to achieve trade-off between risk sensitivity and APC, allowing for estimation for a ceiling, floor, and speed limit. Alexander et al (2019) develop a parametric model for futures margin based on median tail loss of futures distribution, with an objective to maintain stability and reduce procyclicality, while being risk-sensitive. Murphy and Vause (2021), Murphy, Vasios, and Vause (2016) develop a framework for measuring the costs and benefits of different approaches to mitigate procyclicality and perform a comparative analysis of tools to limit procyclicality in terms of variability of the IM requirements.…”

Section: Related Literaturementioning

confidence: 99%

The Effect of Anti‐Procyclical Central Counterparty Margins On Trading

Bhanu

2024

Journal of Futures Markets

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The last decade has seen substantial research and debates on the procyclicality of Central Counterparty (CCP) margins, but these are limited to the sensitivity of margin models to market conditions. This paper establishes the effect of feedback loop between the sensitivity of margin models and trading behavior. It utilizes unique design and high‐frequency data from Indian markets to conduct an event study surrounding the revisions in the margin models to enhance their anti‐procyclicality (APC) characteristics. The analysis shows that current period volatility influences position exits in the subsequent period and vice‐versa. The analysis further shows that for the same price movement, position exits are lowered under stronger APC margin. The effect is weaker for participants having variation losses, where limiting losses may be an additional incentive to exit positions in addition to rise in initial margins. The findings support the argument that better APC characteristics of CCP margins can attenuate volatility.

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Section: Related Literaturementioning

confidence: 99%

The Effect of Anti‐Procyclical Central Counterparty Margins On Trading

Bhanu

2024

Journal of Futures Markets

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“…Moreover, although the SPAN system applied to the existing electricity futures market takes into account the short term-rapid-extreme price changes in futures contracts and the risks associated with delivery defaults, such risks are usually deliberately underestimated in the actual implementation due to the extremely small probability of these two changes occurring [19]. However, for green power futures, the probability of the occurrence of the aforementioned risks arising from weather and low power factor will substantially increase, especially the delivery defaults [20,21]. Therefore, the existing SPAN-based margin calculation method does not apply to the green power futures market.…”

Section: Introductionmentioning

confidence: 99%

A Margin Design Method Based on the SPAN in Electricity Futures Market Considering the Risk of Power Factor

2022

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On-grid integration of renewable energy, also called “green power”, is attracting more and more attention nowadays. Green power futures can be effective in increasing returns to suppliers and increasing market liquidity. However, compared to traditional futures, green power feed-in tariffs may be subject to integrity problems due to lower power factors; therefore, existing margin calculation methods for the futures market are no longer applicable. A SPAN-based margin calculation method that considers the power factor risk is proposed in this paper. The method provides the classification policies of the green power futures, based on the historical power factors of green power suppliers, and allows the margin amount to be adjusted as per the classification. To verify the effectiveness of the proposed method, empirical validation is presented by applying actual transaction data. Results prove that the proposed method can reduce the margin amount while covering the risk effectively.

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“…Futures contracts are commonly used to hedge spot price risk. We refer this rich field to Figlewski (1984), Daskalaki and Skiadopoulos (2016) and Alexander et al (2019) for traditional equity, commodity and currency markets. For bitcoin futures markets, the hedge effectiveness and improvement of portfolio performance are well studied in Alexander et al (2020a), Sebastião and Godinho (2020), Deng et al (2019) and others.…”

Section: Introductionmentioning

confidence: 99%

Liquidation, Leverage and Optimal Margin in Bitcoin Futures Markets

Cheng¹,

Deng²,

Wang³

et al. 2021

Preprint

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Using the generalized extreme value theory to characterize tail distributions, we address liquidation, leverage, and optimal margins for bitcoin long and short futures positions. The empirical analysis of perpetual bitcoin futures on BitMEX shows that (1) daily forced liquidations to outstanding futures are substantial at 3.51%, and 1.89% for long and short; (2) investors got forced liquidation do trade aggressively with average leverage of 60X; and (3) exchanges should elevate current 1% margin requirement to 33% (3X leverage) for long and 20% (5X leverage) for short to reduce the daily margin call probability to 1%. Our results further suggest normality assumption on return significantly underestimates optimal margins. Policy implications are also discussed.

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A parsimonious parametric model for generating margin requirements for futures

Cited by 13 publications

References 61 publications

The Effect of Anti‐Procyclical Central Counterparty Margins On Trading

The Effect of Anti‐Procyclical Central Counterparty Margins On Trading

A Margin Design Method Based on the SPAN in Electricity Futures Market Considering the Risk of Power Factor

Liquidation, Leverage and Optimal Margin in Bitcoin Futures Markets

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