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Setting the margins of Hang Seng Index Futures on different positions using an APARCH-GPD Model based on extreme value theory

2019; Elsevier BV; Volume: 544; Linguagem: Inglês

10.1016/j.physa.2019.123207

1873-2119

Yan Chen, Wenqiang Yu,

Complex Systems and Time Series Analysis

An asymmetric power autoregressive conditional heteroscedasticity with generalized Pareto distribution (APARCH-GPD) model is proposed in this study to determine the optimal margin level for the Hang Seng Index futures contracts on the Hong Kong Futures Exchange. This method requires two steps. First, the APARCH model is used to measure the time-varying volatility of futures contract returns. Then, the tail distribution of the residuals from APARCH model is estimated by the GPD on the basis of the extreme value theory. Value-at-risk is finally estimated and predicted by the APARCH-GPD model, and this is compared with the APARCH-t and EWMA models by backtesting historical return series. The experimental results show that the long trading position of the Hang Seng Index futures contract undertakes more risk than the short trading position. Moreover, the APARCH-GPD model offers better one-day forecasting on both positions than the other models. The findings of this study provide important implications for making decisions on financial risk management.