Dynamic Adjustment Of Index Futures Margin Based On Extreme Value Theory

Risk management is the theme in financial markets forever, especially in an era of the accelerating financial innovation, and the security of financial markets is becoming the focus point of investors and regulators. Margin system is the core of futures markets’risk management and it makes futures trading leveraged. Currently, the dynamic margin system, such as SPAN and TIMS, becomes the first choice for futures markets in developed countries. However, in China, it still implements a static margin system with changes only under some particular circumstances. And the margin is always overvalued according to the risk and has a negative effect on market liquidity. Also, margin based on the static system isn’t able to response immediately to the risk increased substantially, which means this system would be ineffective in a crisis. As there are quite significant disadvantages of the static system, researchers now are centred on the problem about how to apply dynamic margin system to China. And this question related to the index futures needs further study because of its short history in China.This paper reviews foreign and domestic research achievements about dynamic margin settings, compares VaR, Expected Shortfall(ES) and Spectral Measure of Risk(SRM) in theoretic aspect, introduces EVT theory to fit the tail distribution, and then construct a model to estimate the dynamic margin based on POT. According to the theoretically studies, this paper conducts empirical analysis of the samples from the index futures markets and Hushen300Index during the period from2010.4.16to2013.2.1, compares model results, and analyses the margin of different contracts and positions. The empirical result shows that EVT theory has great advantage in tail risk evaluation. In spersific, GARCH-POT-VaR model is the most accurate one to evaluate dynamic margin while ES model is the most suitable one for China now. And R coefficient of SRM shows that short position has larger risk aversion than long position, while in downward trend margin of long position should be higher. And margin of long position increases delivered further into the index futures at confidence level of99%and99.9%, which indicates innegligible liquid risk.