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Download fileA parsimonious parametric model for generating margin requirements for futures
journal contribution
posted on 2023-06-09, 14:23 authored by Carol AlexanderCarol Alexander, Andreas KaeckAndreas Kaeck, Anannit SumawongMajor 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 ResearchISSN
0377-2217Publisher
ElsevierExternal DOI
Issue
1Volume
273Page range
31-43Department affiliated with
- Accounting and Finance Publications
Research groups affiliated with
- Quantitative International Finance Network Publications
Full text available
- Yes
Peer reviewed?
- Yes