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Margin Requirements (margin + requirement)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	100%

Selected Abstracts

A Martingale Characterization of Consumption Choices and Hedging Costs with Margin Requirements

MATHEMATICAL FINANCE, Issue 3 2000
Domenico Cuoco
This paper examines optimal consumption and investment choices and the cost of hedging contingent claims in the presence of margin requirements or, more generally, of nonlinear wealth dynamics and constraints on the portfolio policies. Existence of optimal policies is established using martingale and duality techniques under general assumptions on the securities' price process and the investor's preferences. As an illustration, explicit solutions are provided for an agent with ,logarithmic' utility. A PDE characterization of the cost of hedging a nonnegative path-independent European contingent claim is also provided. [source]

The effectiveness of coordinating price limits across futures and spot markets

THE JOURNAL OF FUTURES MARKETS, Issue 6 2003
Pin-Huang Chou
We extend the work of Brennan (1986) to investigate whether the imposition of spot price limits can further reduce the default risk and lower the effective margin requirement for a futures contract that is already under price limits. Our results show that spot price limits do indeed further reduce the default risk and margin requirement effectively. In addition, the more precise the information is that comes from the spot market, the more the spot price limit rule constrains the information available to the losing party. The default probability, contract costs, and margin requirements are then lowered to a greater degree. Furthermore, for a given margin, both spot price limits and futures price limits can partially substitute for each other in ensuring contract performance. The common practice of imposing equal price limits on both the spot and futures markets, though not coinciding with the efficient contract design, has a lower contract cost and margin requirement than that without imposing spot price limits. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:577,602, 2003 [source]

Initial Margin Requirements, Volatility, and the Individual Investor: Insights from Japan

FINANCIAL REVIEW, Issue 1 2002
Kenneth A. Kim
Initial margin requirements represent: (1) a cost impediment to the wealth constrained investor and (2) a potential way of mitigating excessive volatility. However, prior empirical research finds that margins are not an effective tool in reducing volatility. We consider the possibility that margins primarily affect certain stocks and investors. Specifically, we test whether margins affect individuals who, as a group, we believe to be the investors most affected when margin requirements change. Our initial empirical tests, however, do not support this contention. [source]

An Empirical Comparison of Price-Limit Models,

INTERNATIONAL REVIEW OF FINANCE, Issue 3-4 2006
TAMIR LEVY
ABSTRACT Using futures traded on the Chicago Board of Trade, Chicago Mercantile Exchange and New York Board of Trade, we test six alternative models of the return-generating process (RGP) in futures exchanges that adopt a price-limit regime. We rank the six models according to their return-prediction ability, based on the mean square error criterion, and we find that the near-limit model performed best for both the estimation period and the prediction period. A reliable prediction of the expected return can have important implications for both traders and policy makers, concerning related issues such as the employment of long or short strategy, margin requirements and the effectiveness of the price limit mechanism. [source]

A Martingale Characterization of Consumption Choices and Hedging Costs with Margin Requirements

On the adequacy of single-stock futures margining requirements

THE JOURNAL OF FUTURES MARKETS, Issue 10 2003
Hans R. Dutt
Unlike the traditional futures contract risk-based approach to margining, new security futures contracts are margined under a strategy-based margining system similar to that which applies in the equity options markets. As a result, these new margin requirements are potentially much less sensitive to changes in market conditions. This article performs a simulation to evaluate whether these alternative margining methodologies can be expected to produce comparable outcomes. The analysis suggests that a 1-day settlement period will likely lead to collection of customer margins that are virtually always greater than that which its traditional risk-based counterpart would require. A 4-day settlement period would lead to margin requirements that both significantly under- and overmargin relative to a comparable risk-based system. This study argues that exchanges may approach the preferred probability of customer exhaustion by managing margin settlement intervals. Thus, the new strategy-based rules, in and of themselves, will not necessarily inhibit new security futures trading activity. © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:989,1002, 2003 [source]

Revisiting the empirical estimation of the effect of margin changes on futures trading volume

THE JOURNAL OF FUTURES MARKETS, Issue 6 2003
Hans R. Dutt
This study revisits the empirical estimation of the effect of margin requirements on trading volume. Although theory suggests that margin requirements impose a cost to traders and will therefore likely reduce volume traded, empirical examinations have generally failed to find this association. The contention of this article is that the theory is correct, but empirical estimation has generally neglected to adjust margins for underlying price risk. After adjusting for risk, this analysis finds economically and statistically significant negative effects of margin requirements on trading volume as predicted by theory. This study examined 6 contracts over a 17-year time period and found that financial futures contracts (gold, Dow Jones, and 10-Year Treasury Notes) were considerably more sensitive to changes in margin requirements than agricultural futures (wheat, corn, and oats). © 2003 Wiley Periodicals, Inc. Jrl Fut Mark 23:561,576, 2003 [source]