The Calculation of Margin Requirements For Gold Futures Contracts By Using Conditional Extreme Value Theory

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Karimi, Samira Mameghani | 2013

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Type of Document: M.Sc. Thesis
Language: Farsi
Document No: 44666 (44)
University: Sharif University of Technology
Department: Management and Economics
Advisor(s): Zamani, Shiva
Abstract:
Futures exchanges require a margin requirement that ensures their competitiveness and protects against default risk. The purpose of a margin requirement is to protect a clearinghouse from members’ defaults resulting from big losses due to adverse movement of futures prices. Extreme movements are central to the margin setting problem, because only a large price variation may cause brokers to incur losses. So in this study according to recent default in gold futures in Iran Mercantile Exchange we apply extreme value theory for computing unconditional and conditional optimal margin levels based on Block-Maxima and Peak over threshold approaches.The results show that at very high confidence levels the conditional extreme value theory based on peak over threshold method and GARCH-GJR models produces the most accurate forecasts of extreme losses
Keywords:
Future Contract ; Extreme Value Theory ; Margin Requirement ; Block Maxima ; Peak Over Threshold ; Generalized Pareto Distribution ; Opportunity Cost

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