ADMS4504-Assignment2-F10

ADMS4504-Assignment2-F10 - ADMS4504 3.0 AP/ADMS 4504 3.0...

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ADMS4504 3.0 Assignment #1 Page 1 AP/ADMS 4504 3.0 Fixed Income Fall 2010 Assignment #2 Instructions: (1) This assignment is to be done individually . You must sign and submit the standard cover page supplied as the last page of this assignment. (2) This assignment is due on December 7 , 2010. (3) The work can be typed or handwritten. If it is handwritten and too difficult to read due to messiness and poor handwriting, it will receive zero credit. (4) You must show all details of your work to receive full credit. (5) This assignment contains 5 questions and carries a total of 40 points . Question 1 – Volatility Forecast (8 marks) The following table shows the daily yields for the past 31 days ( note: the table is also provided as an excel sheet Assignment2-Q1-Data.xls ). We assume that the daily changes are continuously compounded. Day 0 4.4548% Day 1 4.6733% Day 11 4.9635% Day 21 4.4523% Day 2 4.7119% Day 12 4.8092% Day 22 4.6470% Day 3 4.6002% Day 13 4.6953% Day 23 4.7757% Day 4 4.6793% Day 14 4.8121% Day 24 4.5458% Day 5 4.8615% Day 15 4.7429% Day 25 4.4397% Day 6 4.9468% Day 16 4.8378% Day 26 4.3307% Day 7 4.7503% Day 17 4.6868% Day 27 4.2366% Day 8 4.7266% Day 18 4.7736% Day 28 4.1120% Day 9 4.5893% Day 19 4.6957% Day 29 4.0105% Day 10 4.4304% Day 20 4.5673% Day 30 3.8827% (a) We assume an equal weight for all days and a zero 10-day moving average. Use a 10-day moving window to forecast the volatility for days 11-31 (e.g. for day 11 we use days 1-10; for day 12, we use days 2-11…). Show the general mathematical formula used even if you use Excel. (3 marks) (b) We assume a weight equal to [3.0872 x (0.7) k-1 ] where k = 1, 2,…,10 respectively for the most recent day, the second most recent day, … until the farthest day in the moving window (
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ADMS4504-Assignment2-F10 - ADMS4504 3.0 AP/ADMS 4504 3.0...

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