A company uses an ewma model for forecasting volatility it, Financial Econometrics

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A company uses an ewma model for forecasting volatility it

1. The most recent estimate of the daily volatility of an asset is 1.5% and the price of the asset at the close of trading yesterday was $30.00. The parameter λ in the EWMA model is 0.94. Suppose that the price of the asset at the close of trading today is $30.50. How will this cause the volatility to be updated by the EWMA model?

3. A company uses an EWMA model for forecasting volatility. It decides to change the parameter λ from 0.95 to 0.85. Explain the likely impact on the forecasts.

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Financial Econometrics: A company uses an ewma model for forecasting volatility it

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