Margins and price limits in Taiwan's stock index futures market

Pin Huang Chou, Mei Chen Lin, Min Teh Yu

研究成果: 雜誌貢獻回顧評介論文同行評審

13 引文 斯高帕斯(Scopus)


This study extends the framework of Brennan (1986) to find the cost-minimizing combination of spot limits, futures limits, and margins for stock and index futures in the Taiwan market. Our empirical results show that the cost-minimization combination of margins, spot price limits, and futures price limits is 7 percent, Opercent, and 6 percent, respectively, when the index level is less than 7,000. When the index level ranges from 7,000 to 9,000, the efficient futures contract calls for a combination of 6.5 percent, 5 percent, and 6 percent. The optimal margin, reneging probability, and corresponding contract cost are less than those without price limits. Price limits may partially substitute for margin requirements in ensuring contract performance, with a default risk lower than the 0.3 percent rate that is accepted by the Taiwan Futures Exchange. On the other hand, though imposing equal price limits of 7 percent on both the spot and futures markets does not coincide with the efficient contract design, it does have a lower contract cost and margin requirement (7.75percent) than that without imposing price limits (8.25 percent).

頁(從 - 到)62-88
期刊Emerging Markets Finance and Trade
出版狀態已出版 - 2006


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