Effectiveness of Derivatives Regulation in India

Abstract

The issue that is being sought to be addressed in this paper is "Whether the current regulatory frame work for Derivatives with regard to Value at Risk (VaR) margins have been effective in managing the risk in the Indian capital market?" To attempt an answer to the problem "Back-testing" will be under taken with respect to the National Stock Exchange of India (NSE) Nifty index futures for the period June 12, 2000 (starting date of Nifty index futures) to October 30,2009.

This paper also intends to examine the suitability coherent risk measures such as Expected Shortfall (ES), which is increasingly becoming popular among risk managers and regulators. Extreme Value Theory will be used to compute the ES measure to fake care fat fail behaviour of Financial Time Series.

Finally, based on the results obtained in the analysis mentioned above, suitable policy recommendations with regard to risk management of derivatives exchanges will be made.