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Setting the futures margin with price limits: the case for single-stock futures.
- Source :
- Review of Quantitative Finance & Accounting; Jan2017, Vol. 48 Issue 1, p219-237, 19p
- Publication Year :
- 2017
-
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]
Details
- Language :
- English
- ISSN :
- 0924865X
- Volume :
- 48
- Issue :
- 1
- Database :
- Complementary Index
- Journal :
- Review of Quantitative Finance & Accounting
- Publication Type :
- Academic Journal
- Accession number :
- 120661555
- Full Text :
- https://doi.org/10.1007/s11156-015-0548-7