Research Of Dynamic Margin Adjusted By Liquidity

With the development of market economy and entry of the WTO, domestic enterprises need to hedge the risk with the help of futures market to play a positive role in finding prices and avoiding the risk. These changes objectively require the futures market to possess the suitable market scale and market mobility. At present, the margin is set up according to the value of the contract in our country. But in foreign countries, it is determined according to the amount of the price change. Dynamic margin can remedy the risk of market price fluctuating in time, so the dynamic margin and margin system will be a trend in the futures market.Liquidity is the key factor which must be taken into account in setting up the margin in our country. The level of the margin when considering the liquidity can better overlay market risk. But foregone researches seldom consider liquidity; therefore, this paper carries out the dynamic margin research by considering liquidity factor. Because price risk and liquidity are all closely related with price fluctuation, futures price fluctuation is not only influenced with the price risk factor, but also the liquidity factor. Computing two kinds of influence respectively and adding together to calculate the total risk will overestimate the total risk of futures, then overestimate margin. As a result, how to separate the price fluctuation that two kinds of factors cause seems to be important. The method in this paper is: with the help of GARCH model, liquidity and price risk are the independent variables in regression equation of return fluctuation. Separate liquidity and price risk, estimate the risk of the return fluctuation and compute VaR of return regression risk, finally estimate the margin.The article uses the data of the cotton and the hard wheat contract in Zheng Zhou Commodity Exchange. The results of empirical research indicate that after liquidity adjustment, the model covers risk better.