# Question

Suppose that the price of Asset X at close of trading yesterday was $300 and its volatility was estimated as 1.3% per day. The price of X at the close of trading today is $298. Suppose further that the price of Asset Y at the close of trading yesterday was $8, its volatility was estimated as 1.5% per day, and its correlation with X was estimated as 0.8. The price of Y at the close

of trading today is unchanged at $8. Update the volatility of X and Y and the correlation between X and Y using

(a) The EWMA model with = 0.94

(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 X and Y?

of trading today is unchanged at $8. Update the volatility of X and Y and the correlation between X and Y using

(a) The EWMA model with = 0.94

(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 X and Y?

## Answer to relevant Questions

The probability density function for an exponential distribution is e−x where x is the value of the variable and is a parameter. The cumulative probability distribution is 1− e−x. Suppose that two ...Suppose that each of two investments has a 4% chance of a loss of $10 million, a 2% chance of a loss of $1 million, and a 94% chance of a profit of $1 million. They are independent of each other. (a) What is the VaR for one ...Investigate the effect of applying extreme value theory to the volatility adjusted results in Section 13.3 with u = 350. A common complaint of risk managers is that the model-building approach (either linear or quadratic) does not work well when delta is close to zero. Test what happens when delta is close to zero in using Sample Application E ...A company enters into a short futures contract to sell 5,000 bushels of wheat for 250 cents per bushel. The initial margin is $3,000 and the maintenance margin is $2,000. What price change would lead to a margin call? Under ...Post your question

0