 Margin requirements with intraday dynamicsJohn Cotter and François Longin Centre for Financial Markets Working Papers from Research Repository, University College Dublin Abstract: Both in practice and in the academic literature, models for setting margin requirements in futures markets use daily closing price changes. However, financial markets have recently shown high intraday volatility, which could bring more risk than expected. Such a phenomenon is well documented in the literature on high-frequency data and has prompted some exchanges to set intraday margin requirements and ask intraday margin calls. This article proposes to set margin requirements by taking into account the intraday dynamics of market prices. Daily margin levels are obtained in two ways: first, by using daily price changes defined with different time-intervals (say from 3 pm to 3 pm on the following trading day instead of traditional closing times); second, by using 5-minute and 1-hour price changes and scaling the results to one day. An application to the FTSE 100 futures contract traded on LIFFE demonstrates the usefulness of this new approach. Keywords: ARCH process; Clearinghouse; Extreme value theory; Futures markets; High frequency data; Intraday dynamics; Futures--Econometric models; Clearinghouses (Banking); Extreme value theory (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:rru:cfmwps:10197/1162 Access Statistics for this paper More papers in Centre for Financial Markets Working Papers from Research Repository, University College Dublin Contact information at EDIRC. |
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