55 lines
2.2 KiB
Plaintext
55 lines
2.2 KiB
Plaintext
668 Part V: Index Options and Futures
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SPAN "margin" applies to futures contracts as well, although volatility consid
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erations don't mean anything in terms of evaluating the actual futures risk As a first
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example, consider how SPAN would evaluate the risk of a futures contract.
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Example: The S&P 500 futures will be used for this example. Suppose that the
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Chicago Mercantile Exchange determines that the required maintenance margin for
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the futures is $10,000, which represents a 20-point move by the futures (recall that
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S&P futures are worth $500 per point). Moreover, the exchange determines that an
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"extreme" move is 14 points, or $7,000 of risk
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Scenario
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Futures unchanged; volatility up
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Futures unchanged; volatility down
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Futures up one-third of range; volatility up
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Futures up one-third of range; volatility down
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Futures down one-third of range; volatility up
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Futures down one-third of range; volatility down
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Futures up two-thirds of range; volatility up
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Futures up two-thirds of range; volatility down
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Futures down two-thirds of range; volatility up
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Futures down two-thirds of range; volatility down
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Futures up three-thirds of range; volatility up
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Futures up three-thirds of range; volatility down
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Futures down three-thirds of range; volatility up
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Futures down three-thirds of range; volatility down
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Futures up "extreme" move
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Futures down "extreme" move
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Long 1
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Future
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Potential
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Pit/Loss
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0
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0
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+ 3,330
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+ 3,330
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- 3,330
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- 3,330
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+ 6,670
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+ 6,670
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- 6,670
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- 6,670
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+ 10,000
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+ l 0,000
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-10,000
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- 10,000
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+ 7,000
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- 7,000
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The 16 array items are always displayed in this order. Note that since this array
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is for a futures contract, the "volatility up" and "volatility down" scenarios are always
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the same, since the volatility that is referred to is the one that is used as the input to
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an option pricing model.
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Notice that the actual price of the futures contract is not needed in order to
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generate the risk array. The SPAN requirement is always the largest potential loss
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from the array. Thus, if one were long one S&P 500 futures contract, his SPAN mar
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gin requirement would be $10,000, which occurs under the "futures down three
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thirds" scenarios. This will always be the maintenance margin for a futures contract. |