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Calculate the current estimate of the covariance

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Suppose that the current daily volatilities of asset A and asset B are 1.65% and 2.32%, respectively. The prices of the assets at close of trading yesterday were $35 and $52 and the estimate of the coefficient of correlation between the returns on the two assets made at that time was 0.26. The parameter λ used in the EWMA model is 0.95.

Question 1: Calculate the current estimate of the covariance between the assets.

Question 2: On the assumption that the prices of the assets at close of trading today are $36 and $53, update the correlation estimate

Reference no: EM132575523

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