At the end of Thursday, the estimated volatility of asset A is 2% per day. During Friday asset A produces a return of 3%. An EWMA model with lambda equal to 0.9 is used. What is an estimate of the volatility of asset A at the end of Friday?
A. 2.08%
B. 2.10%
C. 2.12%
D. 2.14%
C
The variance rate is 0.9×0.022+0.1×0.032 = 0.00045 . The volatility per day is the square root of this or 2.12%.
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