Question

1. Mark to market a long Eurodollar futures position with June delivery at 93.75 if daily IMM Index settlement prices are

Day 1: 93.90

Day 2: 93.45

Day 3: 93.24

Day 4: 93.58

Day 5: 94.00

List the margin account balances at the end of each trading day and specify (i) whether an additional margin is required on any given day and, (ii) if a margin call is issued, how much must be deposited to your margin account. Assume that the initial margin is $3,000; the maintenance margin is $2,000, and the tick value is 1 b.p. = $25.

Answer 1

Initial Margin = $ 3000 and Maintenance Margin = $ 2000, 1 bp = $ 25

Initial Price = 93.75

Day 1: Final Price = 93.90

Change in bp = 93.9 - 93.75 = 0.15 or 15 bp

$ Value of Change = 15 x 25 = $ 375

Margin Account Value = 3000 + 375 = $ 3375

Day 2: Final Price = 93.45

Change in bp = (93.45 - 93.9) = - 0.45 or 45 bp

$ Value of Change = -45 x 25 = - $ 1125

Margin Account Value = 3375 - 1125 = $ 2250

Day 3:

Final Price = 93.24

Change in bp = (93.24 - 93.45) = - 0.21 or 21 bp

$ Value of Change = -21 x 25 = - $ 525

Margin Account Value = 2250 - 525 = $ 1725

As the maintenance margin is breached, the account will need to be topped up to its initial margin value of $ 3000

Day 4:Final Price = 93.58

Change in bp = (93.58- 93.24) = 0.34 or 34 bp

$ Value of Change = 34 x 25 = $ 850

Margin Account Value = 3000 + 850 = $ 3850

Day 5:Final Price = 94

Change in bp = (94 - 93.58) = - 0.42 or 42 bp

$ Value of Change = 42 x 25 = $ 1050

Margin Account Value = 3850 + 1050 = $ 4900