ewma

dipaksutariya
Posts: 2
Joined: Sun Apr 22, 2012 5:27 pm

ewma

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

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suresh.wadhwani2009
Finance Junkie
Posts: 99
Joined: Sat Apr 07, 2012 10:24 am

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,

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.

dipaksutariya
Posts: 2
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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