Margin Adequacy and Standards: An Analysis of the Crude Oil Futures Market

Day, Theodore E.; Lewis, Catherine

doi:10.1086/379863

Cited by 19 publications

(13 citation statements)

References 21 publications

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“…Based on these estimates, margins for protecting the solvency of the futures exchange can be set, but the SPAN system sometimes overstates the margin. High dependency of initial margins on the volatility of the futures market complicated margin determination (Day et al, 2004). Figure 1 shows trends of crude oil prices (weekly Cushing WTI spot prices) in the period from 1986 to 2017 and it is clear that the price varied signifi cantly.…”

Section: Oil and Gas Futures Marketsmentioning

confidence: 99%

“…45-54, DOI: 10.17794/rgn.2017.4.5 the derivative and product markets is considered to be a hedger, while speculators don't deal with physical products (Dahl, 2004). Day et al (2004) found that hedging is independent of volatility, which means that hedging demand is inelastic during normal futures market volatility periods. On the other hand, speculative trading is "positively related to changes in volatility" (Day et al, 2004).…”

Section: Hedging On Futures Marketsmentioning

confidence: 99%

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Oil and Gas Futures and Options Market

Nosić¹,

Sedlar

Jukić

2017

MGPB

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Energy mineral resource markets are represented by complex supply and demand ratios which are depending on diff erent factors such as technical (transport) and geopolitical. The main characteristicof energy markets is represented by an uneven geographic distribution of hydrocarbon reserves and production on one hand, and energy consumption on the other. World oil markets, although geographically localized, because of specifi c market trade, represent a unique global market with a decreasing price diff erence. Price diff erences are the result of the development of transport possibilities of oil supply. The development of transport routes of natural gas and an increasing number of liquefi ed natural gas terminals in the world give pressure to the natural gas market and its integration into the global gas market. The integration of regional gas markets into a common European gas market is the main energy policy of EU concerning natural gas. On the other hand, there are still signifi cant price diff erences on some markets (e.g. United States of America -South East Asia). The development of global energy markets is enabled by the development of futures and options contracts of an energy trade which have replaced bilateral contract deals between producers and consumers. Futures contracts are standardized contracts traded on exchanges. A buyer agrees to buy a certain quantity of stock for an agreed upon price and with some future delivery date. An option is a contract which gives a buyer the option of the right to buy (or sell, depending on the option) an asset at a predetermined price and at a later date. A stock's price risk can be managed with the purchase and selling futures and options contracts. This paper deals with futures and options energy markets and their market strategies.

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Section: Oil and Gas Futures Marketsmentioning

confidence: 99%

Section: Hedging On Futures Marketsmentioning

confidence: 99%

Oil and Gas Futures and Options Market

Nosić¹,

Sedlar

Jukić

2017

MGPB

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“…Another approach developed by Craine (1992) and Day and Lewis (1999) is based on the fact that the distributions of the payoffs to futures traders and the potential losses to the futures clearinghouse can be described in terms of the payoffs to barrier options. Initial margins requirements can then be related to the present value of such options.…”

Section: For Products Traded On the London International Financial Fumentioning

confidence: 99%

Margin Requirements with Intraday Dynamics

Cotter¹,

Longin²

2006

Transparency, Governance and Markets

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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.

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“…It has been suggested to restore margins to prevent business from becoming unaffordable and to avoid having to make asset decisions at a time when is a strong demand. Day and Lewis [13] proposes two valuebased standards for setting the initial margin requirements on futures positions based on the observation that the distributions of the payoffs to futures traders and the potential losses to the futures clearinghouse can be described in terms of the payoffs to barrier options. The results suggest that, on average, the initial margin requirements set by the New York Mercantile Exchange exceed the minimum margins required under our option-based standards for adequacy.…”

Section: Introductionmentioning

confidence: 99%

Petro Exchange in India: A Viability Check

T¹

2017

Int J Econ Manag Sci

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Margin Adequacy and Standards: An Analysis of the Crude Oil Futures Market

Cited by 19 publications

References 21 publications

Oil and Gas Futures and Options Market

Oil and Gas Futures and Options Market

Margin Requirements with Intraday Dynamics

Petro Exchange in India: A Viability Check

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