Question
The price of asset A at the close of trading yesterday was $100 and its volatility was estimated as 1% per day. The price of
The price of asset A at the close of trading yesterday was $100 and its volatility was estimated as 1% per day. The price of A at the close of trading today is $102. The price of asset B at the close of trading yesterday was $20, its volatility was estimated to be 2% daily, and its correlation with A was estimated as -0.5. The price of B at the close of trading today is $18. (1) Update the volatilities of A and B and the correlation between the two assets using the EWMA model with = 0.94. (2) Repeat the analysis in (1) using a GARCH(1,1) model with = 0.000002, = 0.03, and = 0.95.
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