Quants

anbu.edu
Finance Junkie
Posts: 205
Joined: Mon Feb 04, 2013 3:35 pm

Quants

Postby anbu.edu » Sun Oct 06, 2013 11:29 pm

The current estimate of daily volatility is 1.5 percent. The closing price of an asset yesterday was $30.00. The closing price of the asset today is $30.50. Using the EWMA model with lembda = 0.94, the updated estimate of volatility is
Choose one answer.
a. 1.5096 Correct
b. 1.5085 Incorrect
c. 1.5092 Incorrect
d. 1.5083 Incorrect

How to find this answer.. i followed discreet and i cant get this answer

pradeeppdy
Finance Junkie
Posts: 258
Joined: Thu Sep 20, 2012 3:42 pm

Quants

Postby pradeeppdy » Thu Oct 10, 2013 6:53 am

To calculate the return, we have y'day price and todays price,

Log(P1/P0)=Log(30.5/30)=1.653%
Convert the above return from continuous compounding to discrete compounding as below,

Rm=m[exp(Rc/m)-1]
R1=1[exp(0.01653)-1]
R1=1.667%

Now you can put the values of return and volatility in EWMA model, u will get the ans.


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