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

Theodore E. Day
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Theodore E. Day: University of Texas at Dallas

The Journal of Business, 2004, vol. 77, issue 1, 101-136

Abstract: This article proposes two value-based 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. Using both margin standards, we examine the adequacy of initial margin requirements in the crude oil futures market. Our 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.

Date: 2004
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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jnlbus:v:77:y:2004:i:1:p:101-136

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