Question

What is the difference between the exponentially weighted moving average model and the GARCH $(1,1)$ model for updating volatilities?

   What is the difference between the exponentially weighted moving average model and the GARCH $(1,1)$ model for updating volatilities?

Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 23, Problem 2

Instant Answer

Step 1

It calculates the current volatility as a weighted average of the previous volatility and the squared difference between the current observation and the previous volatility. The weights decrease exponentially as we move further back in time. Show more…

Show all steps

lock

Thanks for your feedback!

What is the difference between the exponentially weighted moving average model and the GARCH $(1,1)$ model for updating volatilities?

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