Realized volatility and minimum capital requirements

Key to the imposition of appropriate minimum capital requirements on a daily
basis requires accurate volatility estimation. Here, measures are presented based on
discrete estimation of aggregated high frequency UK futures realisations
underpinned by a continuous time framework. Squared and absolute returns are
incorporated into the measurement process so as to rely on the quadratic variation
of a diffusion process and be robust in the presence of fat tails. The realized
volatility estimates incorporate the long memory property. The dynamics of the
volatility variable are adequately captured. Resulting rescaled returns are applied
to minimum capital requirement calculations.