NSE Quotes – Extreme Loss Rate

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Extreme Loss rate considers the losses that could occur outside the coverage of VaR.

The Extreme loss margin for a stock is the higher of the following

·        1.5 times the standard deviation of daily LN returns of the stock price in the last six months i.e. 1.5 times Volatilty in the last 6 months.

·        5% of the value of the position (Buy or Sell) 

Extreme Loss rate considers wider range of price values (6 months’ prices). The minimum value for this margin is 5% for any stock. 

This margin rate is fixed at the beginning of every month, by taking the price data on a rolling basis for the past six months.

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{ 2 comments… read them below or add one }

shakti January 29, 2011 at 9:53 am

Hi, Sathish.
i read your nicely written and well formed article on Volatility measures. this good work shows your knowlede and passion towards your work, and ability of GURUISM. every thing is fine!
at conclusion please more ellobrate, that how this measure effects.

Reply

Sathish Emmadi January 29, 2011 at 1:32 pm

Thanks Shakti.

Most of the times the other margins would cover the risks associated with trading in stock markets. Addition of Extreme loss rate to the margin money will leave out very less risk.

In short, the higher the volatility in the last 6 months the higher would be the margin money.

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