The Method To Set Margin Level Of China's Stock Index Futures Based On Compound Extreme Value Theory

Stock index futures as a hedge the risk of an effective tool, has been the word's financial markets and investors'attention. China's stock index futures is also just around the corner. Futures margin as an important risk control system, its design is a direct impact on the reasonable safety and efficiency of the market.However, in the most methods of VaR calculation, normal distribution of returns is unquestionably chose to serve as the elementary hypothesis. Many empirical studies indicate that the real distribution of the percentage price change is not normal distribution because it has palpable fatter tails and a thinner waist. Extreme value theory considers the tail of distribution, because the tail of the distribution reflects the potentially catastrophic case of financial institutions leading to significant losses, risk managers is focused on the tail of the distribution. However, because extreme value theory needs to select a series of extreme value for calculating, so when the data is limited, it makes the calculation errors easily, and will be difficult to select a theoretical frequency curve point to match experimental point better. Compound extreme value theory, introducing of discrete variables to reflect the aggregation degree of extreme risk, avoids the shortcomings of extreme value theory effectively. This paper studies on setting margin level of China's stock index futures by compound extreme value theory.This paper introduces the knowledge about margin level of stock index futures firstly, sums up the present situation about domestic and foreign margin level of stock index futures research, and then introduces extreme value theory, compound extreme value theory and the concept, computing theorem in detail of VaR. Finally, It conducts empirical research on setting margin level of stock index futures by compound extreme value theory, using the Shanghai and Shenzhen 300 index, and using daily yield of stock index as the origin data, VaR is calculated to determine the level of margin stock index futures. Compared with the extreme value theory has been more cautious and effective level of margin.This article aims at improving the applicability and precision of margin level of stock index futures by using the knowledge of compound extreme value theory and etc. Empirical research findings on China's launch of stock index futures and margin settings have a certain reference.