Question: Question 5 (8 points) #1. Why do you think the implied volatility is superior to the historical volatility when evaluating risk. (2 points) 2. What

Question 5 (8 points) #1. Why do you think the implied

Question 5 (8 points) #1. Why do you think the implied volatility is superior to the historical volatility when evaluating risk. (2 points) 2. What are "the Bad news" and "the good news" which can cause to market volatility? Explain each with giving some examples. (3 points) 3. The most recent estimate of the daily volatility (variance) of an asset is 2% and the price of the asset at the close of trading yesterday was $71.50. The parameter lambada d) in the EWMA model is 0.94. Suppose that the price of the asset at the close of trading today is $76.80. How will this cause the volatility to be updated by the EWMA model? (3 points) use: EWMA model 0,2 = 2 on-12 + (1 - 2 )u n-1 Lambda 2

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