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Rev Fin 1997; 10:303-332
© 1997 the Society for Financial Studies

Article

Initial margin policy and stochastic volatility in the crude oil futures market

TE Day1 and CM Lewis
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 volatility of the crude oil futures market and changes in initial margin requirements. To closely match changes in futures market volatility with the corresponding changes in margin requirements, we infer the volatility of the futures market from the prices of crude oil futures options contracts. Using a mean-reverting diffusion process for volatility, we show that changes in margin policy do not affect subsequent market volatility.


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