Question

Suppose that in Problem 23.17 the price of silver at the close of trading yesterday was $$\$ 16$$, its volatility was estimated as $1.5 \%$ per day, and its correlation with gold was estimated as 0.8 . The price of silver at the close of trading today is unchanged at $$\$ 16$$. Update the volatility of silver and the correlation between silver and gold using the two models in Problem 23.17. In practice, is the $\omega$ parameter likely to be the same for gold and silver?

   Suppose that in Problem 23.17 the price of silver at the close of trading yesterday was $$\$ 16$$, its volatility was estimated as $1.5 \%$ per day, and its correlation with gold was estimated as 0.8 . The price of silver at the close of trading today is unchanged at $$\$ 16$$. Update the volatility of silver and the correlation between silver and gold using the two models in Problem 23.17. In practice, is the $\omega$ parameter likely to be the same for gold and silver?

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 23, Problem 18

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Step 1

17: Model 1: $\sigma_{\text{silver}}^2 = \omega + \alpha \cdot \sigma_{\text{silver}}^2 + \beta \cdot \sigma_{\text{gold}}^2 + 2 \cdot \rho \cdot \sigma_{\text{silver}} \cdot \sigma_{\text{gold}}$ Model 2: $\sigma_{\text{silver}}^2 = \omega + \alpha \cdot Show more…

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Suppose that in Problem 23.17 the price of silver at the close of trading yesterday was $$\$ 16$$, its volatility was estimated as $1.5 \%$ per day, and its correlation with gold was estimated as 0.8 . The price of silver at the close of trading today is unchanged at $$\$ 16$$. Update the volatility of silver and the correlation between silver and gold using the two models in Problem 23.17. In practice, is the $\omega$ parameter likely to be the same for gold and silver?

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