Question

Suppose that the price of gold at close of trading yesterday was $$\$ 600$$ and its volatility was estimated as $1.3 \%$ per day. The price at the close of trading today is $$\$ 596$$. Update the volatility estimate using (a) The EWMA model with $\lambda=0.94$ (b) The GARCH $(1,1)$ model with $\omega=0.000002, \alpha=0.04$, and $\beta=0.94$,

   Suppose that the price of gold at close of trading yesterday was $$\$ 600$$ and its volatility was estimated as $1.3 \%$ per day. The price at the close of trading today is $$\$ 596$$. Update the volatility estimate using
(a) The EWMA model with $\lambda=0.94$
(b) The GARCH $(1,1)$ model with $\omega=0.000002, \alpha=0.04$, and $\beta=0.94$,

Show more…

Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 23, Problem 17

Instant Answer

Step 1

94: To update the volatility estimate using the EWMA model, we can use the following formula: σ_t^2 = λ * σ_(t-1)^2 + (1-λ) * r_(t-1)^2 where σ_t^2 is the updated volatility estimate, σ_(t-1)^2 is the previous volatility estimate, and r_(t-1)^2 is the squared Show more…

Show all steps

lock

Thanks for your feedback!

Suppose that the price of gold at close of trading yesterday was $$\$ 600$$ and its volatility was estimated as $1.3 \%$ per day. The price at the close of trading today is $$\$ 596$$. Update the volatility estimate using (a) The EWMA model with $\lambda=0.94$ (b) The GARCH $(1,1)$ model with $\omega=0.000002, \alpha=0.04$, and $\beta=0.94$,

Play audio

Feedback

Powered by NumerAI

Ace is your personal tutor. It breaks down any question with clear steps so you can learn.

Start Using Ace

Continue solving this problem

Create a free account to:

View full step-by-step solution
Ask follow-up questions with Ace AI
Save progress and study later