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Postby dipaksutariya » Tue May 15, 2012 9:53 pm

he 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
b. 1.5085
c. 1.5092
d. 1.5083
The answer is 1.5096.

The square root of ht = lembda (current vol.)2+ (1 - lembda)(current return)2 Using log-returns, we find R = 1.653%and sigma*t = 1.5096%.With discrete-returns, we find R = 1.667% and sigma*t = 1.5105%.

more detail explanation with log calculation, i m facing difficulties in log calculation


Finance Junkie
Posts: 99
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Re: ewma

Postby suresh.wadhwani2009 » Tue May 15, 2012 10:27 pm

Dear Dipak,

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

Convert the above return from continuous compounding to discrete compounding as below,


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

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Joined: Sun Apr 22, 2012 5:27 pm

Re: ewma

Postby dipaksutariya » Wed May 16, 2012 12:31 am

thanks suresh

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