2011/01/20 by Guanghui Huang, Huang, Guanghui, Jianping Wan +3 · 1 citation
Business, Management and Accounting · Decision Sciences · Economics, Econometrics and Finance · #Credit Risk and Financial Regulations #FOS: Economics and business #Financial Distress and Bankruptcy Prediction #Financial Risk and Volatility Modeling #Insurance and Financial Risk Management #Probability and Risk Models #Risk Management (q-fin.RM) #q-fin.RM
paper · pdf · doi:10.48550/arxiv.1101.3974
27 pages, 2 figures, 5 tables
arxiv created 2011/01/20 · openalex publication_date 2011/01/20 · arxiv updated 2011/01/21 · openalex created_date 2021/02/01 · openalex updated_date 2026/07/28
In order to protect brokers from customer defaults in a volatile market, an active margin system is proposed for the transactions of margin lending in China. The probability of negative return under the condition that collaterals are liquidated in a falling market is used to measure the risk associated with margin loans, and a recursive algorithm is proposed to calculate this probability under a Markov chain model. The optimal maintenance margin ratio can be given under the constraint of the proposed risk measurement for a specified amount of initial margin. An example of such a margin system is constructed and applied to 26,800 margin loans of 134 stocks traded on the Shanghai Stock Exchange. The empirical results indicate that the proposed method is an operational method for brokers to set margin system with a clearly specified target of risk control.