1. Suppose that the price of Asset A at close of trading yesterday was $400 and its volatility was estimated as 1.4% per day. The price of A at the close of trading today is $395. Suppose further that the price of Asset B at the close of trading yesterday was $9, its volatility was estimated as 1.5% per day, and its correlation with A was estimated as 0.7. The price of B at the close of trading today is unchanged at $9. Update the volatility of A and B and the correlation between A and B using:
2. a. The EWMA model with = 0.96.
3. b. The GARCH(1,1) model with = 0.000003, = 0.04, and =
4. 0.94.
5. c. In practice, is the parameter likely to be the same for A and
6. B?