Question

The most recent estimate of the daily volatility of an asset is $$1.5 \%$$ and the price of the asset at the close of trading yesterday was $$\$ 30.00$$. The parameter $\lambda$ in the EWMA model is 0.94. Suppose that the price of the asset at the close of trading today is $$\$ 30.50$$. How will this cause the volatility to be updated by the EWMA model?

   The most recent estimate of the daily volatility of an asset is $$1.5 \%$$ and the price of the asset at the close of trading yesterday was $$\$ 30.00$$. The parameter $\lambda$ in the EWMA model is 0.94. Suppose that the price of the asset at the close of trading today is $$\$ 30.50$$. How will this cause the volatility to be updated by the EWMA model?

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Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 23, Problem 3

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Step 1

Calculate the daily return of the asset: - Yesterday's price: $30.00 - Today's price: $30.50 - Daily return = (Today's price - Yesterday's price) / Yesterday's price = ($30.50 - $30.00) / $30.00 = 0.0167 or 1.67% Show more…

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The most recent estimate of the daily volatility of an asset is $$1.5 \%$$ and the price of the asset at the close of trading yesterday was $$\$ 30.00$$. The parameter $\lambda$ in the EWMA model is 0.94. Suppose that the price of the asset at the close of trading today is $$\$ 30.50$$. How will this cause the volatility to be updated by the EWMA model?

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