Suppose that the price of gold at close of trading yesterday was $300 and its volatility was
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Suppose that the price of gold at close of trading yesterday was $300 and its volatility was estimated as 1.3% per day. The price of gold at the close of trading today is $298. Suppose further that the price of silver at the close of trading yesterday was $8, its volatility was estimated as 1.5% per day, and its correlation with gold was estimated as 0.8.
The price of silver at the close of trading today is unchanged at $8. Update the volatility of gold and silver and the correlation between gold and silver using
(a) the EWMA model with =0.94, and
(b) the GARCH(1,1) model with
= 0.000002, = 0.04, and = 0.94.
In practice, is the parameter likely to be the same for gold and silver?
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