One crude oil futures contract on NYMEX is for the delivery of 1000 barrels.The standard deviation of
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Question:
One crude oil futures contract on NYMEX is for the delivery of 1000 barrels.The standard deviation of daily crude oil price changes is $1.3473.Suppose that price changes are normally distributed with zero mean, and that the exchange wants to set the maintenance margin for traders so that it is 99% certain that the margin will not be wiped out by a two-day price move (it chooses two days,because margin calls are made at the end of the day, and the trader has until the end of the next day to decide whether to provide margin).How high does the margin have to be under these assumptions?
Hint: You can look up the critical value of the normal distribution using the Excel function NORM.INV().
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