Setting the futures margin with price limits: the case for single-stock futures

Chen-Yu Chen (), Jian-Hsin Chou (), Hung-Gay Fung () and Yiuman Tse ()
Additional contact information
Chen-Yu Chen: Chang Jung Christian University
Jian-Hsin Chou: National Kaohsiung First University of Science and Technology
Hung-Gay Fung: University of Missouri-St. Louis
Yiuman Tse: University of Missouri-St. Louis

Review of Quantitative Finance and Accounting, 2017, vol. 48, issue 1, No 8, 219-237

Abstract: Abstract Price limits are artificial boundaries established by regulators to establish the maximum price movement permitted in a single day. We propose using a new censoring method that incorporates the effect of price limits on the futures price distribution and investigates how to set an appropriate daily margin level using single-stock futures in Taiwan. We compare our estimations with those obtained using the method in Longin (J Bus 69:383–408, 1999). The results show that (1) the margin levels derived from the Longin method, which ignore price limits in the estimation, are lower than those in our censoring method; and (2) the legal margin for single-stock futures set at 13.5 % by the Taiwan Futures Exchange to avoid default risk appears to be too high.

Keywords: Censoring method; Margin requirement; Price limits; Single-stock futures (search for similar items in EconPapers)
JEL-codes: G13 G15 G32 (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://link.springer.com/10.1007/s11156-015-0548-7 Abstract (text/html)
Access to full text is restricted to subscribers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:rqfnac:v:48:y:2017:i:1:d:10.1007_s11156-015-0548-7

Ordering information: This journal article can be ordered from
http://www.springer.com/finance/journal/11156/PS2

DOI: 10.1007/s11156-015-0548-7

Access Statistics for this article

Review of Quantitative Finance and Accounting is currently edited by Cheng-Few Lee

More articles in Review of Quantitative Finance and Accounting from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().