4 (b) Use the data in Table 2 below. Correlations and volatilities are updated using a GARCH (1,1) model. Estimates of the models parameters are =0.04 and =094. For the correlation =0.000001 and for the volatilities =0.000003. Use todays closing prices to show how the correlation estimate is updated. (10 marks)

4 (6) Use the data in Table 2 below. Correlations and volatilities are updated using a GARCH (1,1) model. Estimates of the model's parameters are a=0.04 and B=094. For the correlation w=0.000001 and for the volatilities w=0.000003. Use today's closing prices to show how the correlation estimate is updated. (10 marks) Table 2. Current Daily Volatility Yesterday's closing Price Today's closing Price Correlation coefficient (A,B) Asset A 1.0% $30.00 $31.00 Asset B 1.2% $50.00 $51.00 0.50