The most recent estimate of the daily volatility of an asset is 1.75% and the price of the asset at the close of trading yesterday was $50.00. The parameter (1-x ) in the Exponentially Weighted Moving Average (EWMA) model is 0.20. Suppose that the price of the asset at the close of trading today is $55.00. Calculate how this will cause the volatility to be updated by the EWMA model.

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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The most recent estimate of the daily volatility of an asset is 1.75% and the price of the asset at the close of trading yesterday was $50.00. The parameter (1-x ) in the Exponentially Weighted Moving Average (EWMA) model is 0.20. Suppose that the price of the asset at the close of trading today is $55.00. Calculate how this will cause the volatility to be updated by the EWMA model.

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