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Initial margin policy and stochastic volatility in the crude oil futures market |
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| Authors: | Day TE; Lewis CM |
| Institution: | School of Management, University of Texas at Dallas, Box 830688, Richardson, TX 75083-0688, USA Vanderbilt University, USA 1 Corresponding author |
| Abstract: | This article examines the relationship between the volatilityof the crude oil futures market and changes in initial marginrequirements. To closely match changes in futures market volatilitywith the corresponding changes in margin requirements, we inferthe volatility of the futures market from the prices of crudeoil futures options contracts. Using a mean-reverting diffusionprocess for volatility, we show that changes in margin policydo not affect subsequent market volatility. |
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