Year
1997
Abstract
In this paper a new method for setting the margin level in futures markets is developed. Extreme value theory is used to derive the margin level for a given probability of margin violation desired by margin committees or brokers. Extreme movements are central to the problem of margin setting since only a large price variation may cause brokers to suffer losses. The method takes into account the appropriate amount of extremes in the distribution of price changes and provides a simple analytical formula to compute the margin level. I also present an empirical study using prices of the silver futures contracts traded on COMEX.
LONGIN, F. (1997). Optimal Margin Level in Futures Markets – A Method Based on Extreme Price Movements. ESSEC Business School.