Time-Varying Margin Requirements and Optimal Portfolio Choice

47 Pages Posted: 15 Mar 2012 Last revised: 16 Dec 2016

See all articles by Oleg Rytchkov

Oleg Rytchkov

Temple University - Department of Finance

Date Written: January 29, 2014


This paper studies the optimal consumption and portfolio problem of an investor with recursive preferences who is subject to time-varying margin requirements. The level of the requirements at each moment is determined by contemporaneous volatility of returns, which is stochastic and may have jumps. I show that nonstandard hedging demand produced by margin requirements increases with their persistence and volatility. However, for realistic values of parameters the hedging demand is small even in the presence of jumps and contemporaneous jumps in prices have a much stronger effect on optimal portfolio than jumps in constraints.

Keywords: portfolio problem, margin requirements, hedging demand, jumps

JEL Classification: G11, G12

Suggested Citation

Rytchkov, Oleg, Time-Varying Margin Requirements and Optimal Portfolio Choice (January 29, 2014). Journal of Financial and Quantitative Analysis (JFQA), Vol. 51, No. 2, pp. 655-683, 2016, Available at SSRN: https://ssrn.com/abstract=2022770 or http://dx.doi.org/10.2139/ssrn.2022770

Oleg Rytchkov (Contact Author)

Temple University - Department of Finance ( email )

Fox School of Business and Management
Philadelphia, PA 19122
United States

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