At the end of Thursday, the estimated volatility of asset B is 1% per day. During Friday asset B produces a return of zero. An EWMA model with lambda equal to 0.9 is used. What is an estimate of the volatility of asset B at the end of Friday?
A. 0.98%
B. 0.95%
C. 0.92%
D. 0.90%
B
The variance rate is 0.9×0.012+0.1×0.02 = 0.00009 . The volatility per day is the square root of this or 0.95%.
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