At the end of Thursday,the estimated covariance between assets A and B is 0.0001.During Friday asset A produces a return of 3% and asset B produces a return of zero.An EWMA model with lambda equal to 0.9 is used.What is an estimate of the covariance at the end of Friday?
A) 0.000090
B) 0.000081
C) 0.000100
D) 0.000095

Question

Quizplus · Accepted Answer

The covariance is 0.9×0.0001+0.1×0.03×0 = 0.000090.

At the End of Thursday,the Estimated Covariance Between Assets a and B