16.25. An Excel spreadsheet containing daily data on a number of different exchange rates and stock indices can be downloaded from the author's Web site: http://www.rotman.utoronto.ca/"hull Choose one exchange rate and one stock index. Estimate the value of in the EWMA model that minimizes the value of

where V_i is the variance forecast made at the end of day i-1 and B, is the variance calculated from data between day i and i + 25. Use Excel's Solver tool. Set the variance forecast at the end of the first day equal to the square of the return on that day to start the EWMA calculations.

Transcribed Image Text:

: -