Extreme-value and Margin Setting with Price Limits Using a Censoring Technique

Extensive research has been conducted on the issue of how to set the appropriate margin level using the extreme value theory. However, there are no studies exploring the impact of the price limits on the setting of an appropriate futures margin level based on the extreme value theory. The purpose of this paper is to address this issue by using a censoring technique. The CBOT corn futures is used to illustrate the proposed method. The empirical evidences show that in our censoring technique approach, the maintenance margin for the corn futures will not be sufficient to cover the extreme change of futures price.