1. Setting the futures margin with price limits: the case for single-stock futures.
- Author
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Chen, Chen-Yu, Chou, Jian-Hsin, Fung, Hung-Gay, and Tse, Yiuman
- Subjects
STOCKS (Finance) ,MARGIN requirements ,STOCK exchanges ,COUNTERPARTY risk ,FINANCIAL research - 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. [ABSTRACT FROM AUTHOR]
- Published
- 2017
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