Calculate the total margin payable on a trade of shares of PQR Ltd., market value of which is ₹ 50 lakh if VaR margin rate for these shares is 12% and Standard Deviation of Natural Log (LN) Return of the same security fo

CS Professional · Capital Commodity and Money Market · PYQS · December 2018
Calculate the total margin payable on a trade of shares of PQR Ltd., market value of which is ₹ 50 lakh if VaR margin rate for these shares is 12% and Standard Deviation of Natural Log (LN) Return of the same security for the last 6 months is 4.5%.

Answer & Explanation:

Extreme Loss Margin can either be 1.5 times of the Standard Deviation or 5% whichever is higher. Accordingly, 1.50 × 4.50% = 6.75% or 5%. Thus Extreme Margin Loss will be 6.75% Total Margin Payable = 6.75% + 12% = 18.75% For Trade of ₹ 50,00,000 total Margin would be ₹ 50,00,000 × 18.75% = ₹ 9,37,500

Topics: Capital Market

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