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    Tutorial Exercise 2 Hull PDF

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    Desitjable - Clàudia Ruipérez
    This document contains 5 questions about financial risk management concepts like volatility, standard deviation, confidence intervals, and models for estimating volatility like EWMA. It also contains 3 multiple choice questions related to updating volatility estimates using EWMA, measuring changes in historical volatility after a currency peg is abandoned, and identifying an incorrect statement about models like EWMA and GARCH(1,1) for estimating volatility.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    Tutorial Exercise 2 Hull PDF

    Uploaded by

    Desitjable - Clàudia Ruipérez
    29 views2 pages
    This document contains 5 questions about financial risk management concepts like volatility, standard deviation, confidence intervals, and models for estimating volatility like EWMA. It also contains 3 multiple choice questions related to updating volatility estimates using EWMA, measuring changes in historical volatility after a currency peg is abandoned, and identifying an incorrect statement about models like EWMA and GARCH(1,1) for estimating volatility.

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    Hull book Risk management

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    Tutorial Exercise 2 hull.PDF

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    This document contains 5 questions about financial risk management concepts like volatility, standard deviation, confidence intervals, and models for estimating volatility like EWMA. It also contains 3 multiple choice questions related to updating volatility estimates using EWMA, measuring changes in historical volatility after a currency peg is abandoned, and identifying an incorrect statement about models like EWMA and GARCH(1,1) for estimating volatility.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    29 views2 pages

    Tutorial Exercise 2 Hull PDF

    Uploaded by

    Desitjable - Clàudia Ruipérez
    This document contains 5 questions about financial risk management concepts like volatility, standard deviation, confidence intervals, and models for estimating volatility like EWMA. It also contains 3 multiple choice questions related to updating volatility estimates using EWMA, measuring changes in historical volatility after a currency peg is abandoned, and identifying an incorrect statement about models like EWMA and GARCH(1,1) for estimating volatility.

    Copyright:

    © All Rights Reserved
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    Download as pdf or txt
    of 2

    CORPFIN 3504 – Treasury and Financial Risk Management

    Tutorial Exercise 2

    Question 1

    The volatility of an asset is 25% per annum. What is the standard deviation of the percentage
    price change in one trading day? Assuming a normal distribution with zero mean, estimate 95%
    confidence limits for the percentage price change in one day.

    Question 2

    Why do traders assume 252 rather than 365 days in a year when using volatilities?

    Question 3

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    The number of visitors to websites follows the power law in equation (10.1) with α = 2.

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    Suppose that 1% of sites get 500 or more visitors per day. What percentage of sites get (a)

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    1,000 and (b) 2,000 or more visitors per day?

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    Question 4
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    The most recent estimate of the daily volatility of the dollar–sterling exchange rate is 0.6%
    and the exchange rate at 4:00 p.m. yesterday was 1.5000. The parameter λ in the EWMA model
    is 0.9. Suppose that the exchange rate at 4:00 p.m. today proves to be 1.4950. How would the
    o

    estimate of the daily volatility be updated?


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    Question 5

    Suppose that observations on a stock price (in dollars) at the end of each of 15 consecutive
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    days are as follows:


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    30.2, 32.0, 31.1, 30.1, 30.2, 30.3, 30.6, 30.9, 30.5, 31.1, 31.3, 30.8, 30.3, 29.9, 29.8

    Estimate the daily volatility using both following approaches:


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    Th

    a) Standard approach to estimating volatility

    b) Simplification of the standard approach in estimating volatility in Risk Management


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    Multiple Choice Questions:


    Only one answer is correct for each question below. Indicating more than one answer will be
    marked as incorrect

    MCQ 1

    A bank uses the exponentially weighted moving average (EWMA) technique with 𝜆 of 0.9
    to model the daily volatility of a security. The current estimate of the daily volatility is

    1
    https://www.coursehero.com/file/43949943/Tutorial-Exercise-2pdf/
    CORPFIN 3504 – Treasury and Financial Risk Management

    1.5%. The closing price of the security is USD 20 yesterday and USD 18 today. Using
    continuously compounded returns, what is the updated estimate of the volatility?

    a) 3.62%
    b) 1.31%
    c) 2.96%
    d) 5.44%

    MCQ 2

    Until January 1999 the historical volatility for the Brazilian real versus the US. Dollar had
    been very small for several years. On January 13, Brazil abandoned the defense of the
    currency peg. Using the data from the close of business on January 13, which of the
    following methods for calculating volatility would have shown the greatest jump in
    measured historical volatility?

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    a) 250-day equal weight

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    b) Exponentially weighted with a daily decay factor 𝜆 of 0.94

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    c) 60-day equal weight

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    d) All of the above rs e
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    MCQ 3

    Which of the following four statements on models for estimating volatility is incorrect?
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    a) In the EWMA model, some positive weight is assigned to the long-run average variance
    vi y re

    rate.
    b) In the EWMA model, the weight assigned to observations decrease exponentially as
    the observations become older.
    c) In the GARCH(1,1) model, a positive weight is estimated for the long-run average
    ed d

    variance rate.
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    d) In the GARCH(1,1) model, the weights estimated for observations decrease


    exponentially as the observations become older.
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    2
    https://www.coursehero.com/file/43949943/Tutorial-Exercise-2pdf/

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