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Excessive Margin Requirements and Intermarket Derivative Exchange Competition: A Study of the Effect of Risk Management on Market Microstructure

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dc.contributor.author Dutt, Hans R.
dc.creator Dutt, Hans R.
dc.date 2008-04-30
dc.date.accessioned 2008-07-28T13:56:37Z
dc.date.available NO_RESTRICTION en
dc.date.available 2008-07-28T13:56:37Z
dc.date.issued 2008-07-28T13:56:37Z
dc.identifier.uri https://hdl.handle.net/1920/3182
dc.description.abstract The S&P 500 Index futures contract is traded on the Chicago Mercantile Exchange that is regulated by the Commodity Futures Trading Commission. The S&P 500 Index options contract is traded on the Chicago Board of Options Exchange that is regulated by the Securities and Exchange Commission. The differing regulatory structures have led to the S&P 500 Index futures and options contracts being subject to differing customer margining (collateral) requirements. Generally, S&P 500 Index options customer margin requirements are higher than their futures counterpart for a comparably leveraged position. This dissertation examines whether higher relative margin costs lead to trader substitution between markets such that margin costs help determine relative market share. The empirical result I find is that margin costs do not appear to affect market share between options and futures markets. This result may not necessarily be a rejection of economic theory that suggests traders will substitute between like assets based on differences in these assets’ costs, but may result from large illiquidity in options markets as characterized by the empirical finding of relatively large bid ask spreads in options markets for similarly leveraged positions. The finding of relatively large bid ask spread costs in the S&P 500 options market is consistent with the academic literature finding that price discovery occurs primarily in the futures market ( Fleming, Ostdiek and Whaley (1996)).
dc.language.iso en_US en
dc.subject Derivatives Markets en_US
dc.subject Margin Requirements en_US
dc.subject Risk Management en_US
dc.subject Market Microstructure en_US
dc.subject Futures Markets en_US
dc.subject Options Markets en_US
dc.title Excessive Margin Requirements and Intermarket Derivative Exchange Competition: A Study of the Effect of Risk Management on Market Microstructure en
dc.type Dissertation en
thesis.degree.name Doctor of Philosophy in Economics en
thesis.degree.level Doctoral en
thesis.degree.discipline Economics en
thesis.degree.grantor George Mason University en


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