Margin Exceedences for European Stock Index Futures Using Extreme Value Theory

42 Pages Posted: 25 Jun 2007

See all articles by John Cotter

John Cotter

University College Dublin; UCLA Anderson School of Management

Date Written: 2001


Futures exchanges require a margin requirement that ensures their competitiveness and protects against default risk. This paper applies extreme value theory in computing unconditional optimal margin levels for a selection of stock index futures traded on European exchanges. The theoretical framework focuses explicitly on tail returns, thereby properly accounting for large levels of risk in measuring prudent margin levels. The paper finds that common margin requirements are sufficient for each contract, with the exception of the Norwegian OBX index, in providing equitable costs for traders. In addition, the paper shows the underestimation bias in margin levels that are calculated assuming normality. Differing margin requirements reflect the unconditional and conditional trading environments.

Keywords: Stock Index Futures, Extreme Value Theory, Margin Levels

JEL Classification: G15

Suggested Citation

Cotter, John, Margin Exceedences for European Stock Index Futures Using Extreme Value Theory (2001). Available at SSRN: or

John Cotter (Contact Author)

University College Dublin ( email )

School of Business, Carysfort Avenue
Blackrock, Co. Dublin
353 1 716 8900 (Phone)
353 1 283 5482 (Fax)


UCLA Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

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