Futures Contracts Margin Setting by CVaR Approach Based on Extreme Value Theory

Subject Areas : Financial engineering

mirFeyz Fallahshams ¹ , ali Saghafi ² , alireza naserpoor ³

1 - Associate Prof., Faculty of Management, Islamic Azad University, Central Tehran branch, Tehran, Iran
2 - Prof., Faculty of Management and Accounting University of Allameh Tabatabaie, Tehran, Iran
3 - Ph.D. Student in financial Management, Faculty of Management and Accounting University of Allameh Tabatabaie, Tehran, Iran

Received: 2017-04-22 Accepted : 2017-07-02 Published : 2016-09-22

Keywords: Value at risk, Christoffersen Back Test, CVAR, Extreme Value Theory General Pareto Distribution, Margin,

Abstract :

this study, using gold coins spot price returns, in the period from 2008 to 2016, estimates IME gold coin futures contracts Initial margin, by Value at Risk and ConditionalValue at Risk (CVAR) approaches. It use variance- covariance modeles, based on normal and T-student distributions,  general pareto distribution and adaptive GPD models fore estimating initial margin requerment for futures contracts open positions. Fore VaR moles backtesting, it applies Christoffersen conditonal coverage liklihood ratio(LRcc) test and lopez and Blanco-Ihle loss functions. MAE and RMSE loss functions have been used for Conditional Value at Risk (CVAR) models Evalution. The paper finds that all models have been underperforming in low confidence level and Variance - covariance models based on T-student Distribution and adaptive GPD has outperformed the other models that support the fat tailed nature of gold coin spot price data historical distribution.