The Application Of VAR Method In Designing Futures Margin

China’s first Stock Index Futures Contracts listed in the China Financial Futures Exchange on April16,2010. Margin trading system as a reasonable set margin levels is very important is an important feature of the Stock Index Futures market. CSI300Index to reflect the A-share market’s overall trend. The stock market is booming in China, without an effective tool to protect risk-averse investors. The CSI300Index Futures contracts can hedge risk, which catch the concern of the majority of investors and financial institutions. Stock index futures contracts like a double-edged sword as a financial derivative instruments, which hedge the spot market risk, at the same time it give investors more complex, more diverse risks. Because of the highly leveraged stock index futures have, it is easy to enlarge the risk. Therefore, in order to effectively use stock index futures, risk control is particularly important. The level of margin is most directly related to risk control of stock index futures contracts. The China Financial Futures Exchange rule set the current stock index futures margin level of the minimum standards fixed proportion12%, which well cover the risk of price changes. The high level of margin is bound with the increased transaction costs of investors in China stock index futures. Of course, high-margin is necessary at the initial stages of the stock futures market development, but the high level of margin brings in many shorts. VAR method was proposed in1993, which was accepted by the global financial institutions and non-financial institutions because of its global financial institutions and non-financial institutions. Among these methods, the Monte Carlo simulation method was the greater applicability in the VAR approach. This paper is to determine the level of the CSI300stock index futures contracts margin using Monte Carlo simulation method for computing VAR.The paper firstly introduce the stock index futures, included the emergence, development, and analysis of stock index futures market which has a different risk than the stock market, the need for stock index futures market which can effectively avoid the stock market systematic risk. Next, the paper describes the theory of stock index futures market margin and discuss the problems of the setting of our country futures margin at this stage, combined with domestic and foreign stock index futures margin set methods. Then, the paper introduces different methods of calculate the value of VAR, describes the basic principles of the VAR approach and the commonly used three methods. Finally, the empirical aspects of this paper using the EWMA method, historical simulation and Monte Carlo simulation method to calculate the value of VAR of the rate of the CSI300index return at the forecast period. Through the test of backtesting, we know that Monte Carlo simulation to calculate the margin levels better than other methods. Finally, the paper take the stock index futures margin which is equal the minimum amount of the absolute value of each trading day’ VAR and the ups and downs stop restriction.