Minimum Capital Requirement Calculations for UK Futures

Key to the imposition of appropriate minimum capital requirements on a dailybasis requires accurate volatility estimation. Here, measures are presented based ondiscrete estimation of aggregated high frequency UK futures realisationsunderpinned by a continuous time framework. Squared and absolute returns areincorporated into the measurement process so as to rely on the quadratic variationof a diffusion process and be robust in the presence of fat tails. The realizedvolatility estimates incorporate the long memory property. The dynamics of thevolatility variable are adequately captured. Resulting rescaled returns are appliedto minimum capital requirement calculations.