Abstract

In this paper, we focus on designing a real-time risk management system. The system will be using CME SPAN and will consist of a multithreaded daemon process to evaluate portfolios using SPAN calculation engines and programs to determine parameters fed to SPAN. SPAN parameters can be estimated by several methods using historical data. One of the goals is to determine the best method for each parameter for every asset class. The other goal is to develop a responsive system to analyze portfolios and orders in real-time and to update the portfolio risks accordingly. Ultimately when these two parts are combined, we’ll be constructing a real-time system to evaluate portfolio risks and to determine optimum margin requirements.

References

• Tapiero C., Risk and Financial Management: Mathematical and Computational Methods, John Wiley & Sons Ltd, ISBN: 0-470-84908-8, 2004.
• Bodnar G. M., Hayt G. S., Marston R. C., "1998 Wharton Survey of Financial Risk Management by US Non-Financial Firms," Financial Management, Vol. 27, No. 4, pp. 70-91, 1998.
• Basak S., Shapiro A., “Value-at-Risk-Based Risk Management: Optimal Policies and Asset Prices,” The Review of Financial Studies, Vol. 14, No. 2, pp. 371-405, 2001.
• Telser L. G., “Margins and Futures Contracts,” The Journal of Futures Markets, Vol. 1, No. 2, pp. 225-253, 1981.
• Longin F., “Optimal Margin Level in Futures Markets: Extreme Price Movements,” The Journal of Futures Markets, Vol. 19, No. 2, pp. 127-152, 1999.
• Knott R., Mills A., "Modeling risk in central counterparty clearing houses: a review", Financial Stability Review, December, pp. 162-174, 2002.
• General Information about Istanbul Stock Exchange. Available: www.ise.org. Retrieved: March 07, 2011.
• Introductory information and outline about what SPAN is and how it works. Available: http://www.cmegroup. com/clearing/risk-management/span-overview.html. Retrieved: April 23, 2011.
• Bear R. M., “Margin Levels and the Behavior of Futures Prices,” Journal of Financial and Quantitative Analysis, Vol. 7, No. 4, pp. 1907-1930, 1972.
• Fishe R. P. H., Goldberg L. G., “Margin requirement in futures markets: Their relationship to price volatility,” The Journal of Futures Markets, Vol. 6, No. 2, pp. 261-271, 1986.
• Furbush D., Poulsen A., “Harmonizing Margins: The Regulation of Margin Levels in Stock Index Futures Markets,” Cornell Law Review, 74, pp. 873-901, 1989.
• Dutt H. R., Wein, I. L, “Revisiting the empirical estimation of the effect of margin changes on futures trading volume,” The Journal of Futures Markets, Vol. 23, No. 6, pp. 561-576, 2003.
• Figlewski S., “Margins and market integrity: Margin setting for stock index futures and options,” The Journal of Futures Markets, Vol. 4, No. 3, pp. 385-416, 1984.
• Gay G. D., Hunter W. C., Kolb R. W. “A comparative analysis of futures contract margins,” The Journal of Futures Markets, Vol. 6, No. 2, pp. 307-324, 1986.
• Tomek W. G., “Margins on Futures Contracts: Their Economic Roles and Regulation”, in A. Peck(Ed,), Futures Markets: Regulatory Issues, American Enterprise Institute, 1985.
• Edwards F. R., Neftci S. N., “Extreme price movements and margin levels in futures markets,” The Journal of Futures Markets, Vol. 8, No. 6, pp. 639-655, 1988.
• Harmantzis F. C., Miao L., Chien Y., “Empirical study of value-at-risk and expected shortfall models with heavy tails,” The Journal of Risk Finance, Vol. 7, No. 2, pp. 117-135, 2006.
• Hull J. C., Fundementals of Futures and Options Markets, Pearson Prentice Hall, ISBN: 0-13-224226-5, 2008.
• Bollerslev T., “Generalized Auto-regressive Conditional Heteroskedasticity,” Journal of Econometrics, 31, pp. 307-327
• Nelson D. B., “Conditional heteroskedasticity in asset returns: A new approach,” The Journal of Futures Markets, Vol. 59, No. 2, pp. 347-370, 1991.
• Engle R. F., Manganelli S., “CAViaR: Conditional Autoregressive Value at Risk by Regression Quantiles,” Journal of Business & Economic Statistics, Vol. 22, No. 4, pp. 367-381, 2004.