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Minimum Capital Requirement Calculations for UK Futures

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  • John Cotter

Abstract

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.

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File URL: http://arxiv.org/pdf/1103.5416
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Bibliographic Info

Paper provided by arXiv.org in its series Papers with number 1103.5416.

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Date of creation: Mar 2011
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Handle: RePEc:arx:papers:1103.5416

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  1. Dimson, Elroy & Marsh, Paul, 1997. "Stress tests of capital requirements," Journal of Banking & Finance, Elsevier, vol. 21(11-12), pages 1515-1546, December.
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  5. Cotter, John, 2001. "Margin exceedences for European stock index futures using extreme value theory," Journal of Banking & Finance, Elsevier, vol. 25(8), pages 1475-1502, August.
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  7. Foster, Dean P & Nelson, Daniel B, 1996. "Continuous Record Asymptotics for Rolling Sample Variance Estimators," Econometrica, Econometric Society, vol. 64(1), pages 139-74, January.
  8. Hsieh, David A., 1993. "Implications of Nonlinear Dynamics for Financial Risk Management," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(01), pages 41-64, March.
  9. Goodhart, Charles A. E. & O'Hara, Maureen, 1997. "High frequency data in financial markets: Issues and applications," Journal of Empirical Finance, Elsevier, vol. 4(2-3), pages 73-114, June.
  10. Deo, Rohit S. & Hurvich, Clifford M., 2001. "On The Log Periodogram Regression Estimator Of The Memory Parameter In Long Memory Stochastic Volatility Models," Econometric Theory, Cambridge University Press, vol. 17(04), pages 686-710, August.
  11. Andersen T. G & Bollerslev T. & Diebold F. X & Labys P., 2001. "The Distribution of Realized Exchange Rate Volatility," Journal of the American Statistical Association, American Statistical Association, vol. 96, pages 42-55, March.
  12. Andersen, Torben G. & Bollerslev, Tim & Cai, Jun, 2000. "Intraday and interday volatility in the Japanese stock market," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 10(2), pages 107-130, June.
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Cited by:
  1. John Cotter & Francois Longin, 2011. "Margin Requirements with Intraday Dynamics," Working Papers 200519, Geary Institute, University College Dublin.
  2. John Cotter, 2011. "Absolute Return Volatility," Working Papers 200415, Geary Institute, University College Dublin.
  3. john cotter & kevin dowd, 2011. "Estimating financial risk measures for futures positions: a non-parametric approach," Papers 1103.5666, arXiv.org.
  4. Cotter, John & Longin, Francois, 2004. "Margin setting with high-frequency data," MPRA Paper 3528, University Library of Munich, Germany, revised 2006.

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