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Back to the future: Futures margins in a future credit default swap index futures market

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  • Hans N. E. Byström

Abstract

The introduction of exchange‐traded credit default swap (CDS) index futures is eminent and this development in the credit market is the subject of this article. A theoretically appealing and practically implementable approach to computing accurate futures margins based on extreme value theory is suggested. The approach is then exemplified with a study of the increasingly popular iTraxx Europe CDS index market. Although this market is not organized through an exchange and is not a futures market, the empirical results together with an arbitrage argument nonetheless suggest margin levels in a future exchange‐traded CDS index futures market computed using extreme value theory to be superior to those computed using the traditional normal distribution or the actual historical distribution. © 2007 Wiley Periodicals, Inc. Jrl Fut Mark 27:85–104, 2007

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  • Hans N. E. Byström, 2007. "Back to the future: Futures margins in a future credit default swap index futures market," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 27(1), pages 85-104, January.
  • Handle: RePEc:wly:jfutmk:v:27:y:2007:i:1:p:85-104
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    Cited by:

    1. Augustin, Patrick & Subrahmanyam, Marti G. & Tang, Dragon Yongjun & Wang, Sarah Qian, 2014. "Credit Default Swaps: A Survey," Foundations and Trends(R) in Finance, now publishers, vol. 9(1-2), pages 1-196, December.

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