4. Suppose that the price of an asset at close of trading yesterday was $300 and...

4. Suppose that the price of an asset at close of trading yesterday was $300 and its volatility was estimated as 1.3% per day. The price at the close of trading today is $298. Update the volatility estimate using
(i) The EWMA model with λ = 0.94
(ii) The GARCH(1,1) model with ω = 0.000002, α = 0.04, and β = 0.94.

Solutions

Expert Solution

Ans

1. Using EWMA Model

The new daily volatility is 1.271% per day

2. Using GARCH (1,1)

The new daily volatility is 1.275% per day

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jeff jeffy answered 2 hours ago

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