Question 1

The parameters in a GARCH (1,1) model are: omega =0.000002, alpha = 0.04,and beta = 0.95.
-The current estimate of the volatility level is 1% per day.If we observe a change in the value of the variable equal to 2%,how does the estimate of the volatility change

Accepted Answer

A)  1.26%
B)  1.16%
C)  1.06%
D)  1.03%E) A) and C)
F) None of the above

Question 2

Which of the following is true of a positive semi-definite variance-covariance matrix

Accepted Answer

A)  All elements of the matrix are positive
B)  The determinant of the matrix is positive
C)  The matrix is symmetric
D)  The matrix is internally consistentE) B) and C)
F) A) and D) D

Question 3

Which of the following is a definition of the covariance between X and Y?

Accepted Answer

A)  Correlation between X and Y times variance of X times variance of Y
B)  Variance of X times the variance of Y
C)  Correlation between X and Y divided by the product of the standard deviation of X and the standard deviation of Y
D)  Correlation between X and Y times standard deviation of X times standard deviation of YE) B) and D)
F) B) and C)

Question 4

Which of the following is true

Accepted Answer

A)  All option implied volatilities tend to move by the same about from one day to the next
B)  The implied volatilities of long-dated options tend to move by more than the implied volatilities of short-dated options
C)  The implied volatilities of short-dated options tend to move by more than the implied volatilities of long-dated options
D)  Sometimes C is true and sometimes D is trueE) B) and D)
F) B) and C)

Question 5

Which of the following is true

Accepted Answer

A)  Volatilities and correlations decreased in the second half of 2008
B)  Volatilities and correlations increased in the second half of 2008
C)  Volatilities decreased and correlations increased in the second half of 2008
D)  Volatilities increased and correlations decreased in the second half of 2008E) All of the above
F) A) and C)

Question 6

Which of the following is true

Accepted Answer

A)  GARCH (1,1)  will always give a maximum likelihood at least as high as EWMA
B)  EWMA will always give a maximum likelihood at least as high as GARCH (1,1) 
C)  The maximum likelihood is the same for GARCH (1,1)  and EWMA
D)  Sometimes A is true and sometimes B is true.E) C) and D)
F) B) and D)

Question 7

Which of the following is true of maximum likelihood methods

Accepted Answer

A)  They calculate the maximum possible values for parameters
B)  They calculate parameters that give the highest probability of past data occurring
C)  They calculate values for key variables that are most likely to occur in the future
D)  They involve a multivariate regression analysisE) B) and C)
F) All of the above

Question 8

The parameters in a GARCH (1,1) model are: omega =0.000002, alpha = 0.04,and beta = 0.95.What is the reversion rate for the variance rate implied by the model

Accepted Answer

A)  0.5% per day
B)  1.0% per day
C)  1.5% per day
D)  2.0% per dayE) B) and D)
F) All of the above

Question 9

What does EWMA stand for?

Accepted Answer

A)  Equally weighted moving average
B)  Equally weighted median approximation
C)  Exponentially weighted moving average
D)  Exponentially weighted median averageE) A) and D)
F) A) and B)

Question 10

Which of the following is true when the parameter lambda equals 0.95?

Accepted Answer

A)  The weight given to the most recent observation is 0.95
B)  The weight given to the observation one day ago is 95% of the weight given to the observation two days ago
C)  The weights given to observations add up to 0.95
D)  The weights given to the observation two days ago is 95% of the weight given to the observation one day agoE) All of the above
F) A) and B)

Question 11

The parameters in a GARCH (1,1) model are: omega =0.000002, alpha = 0.04,and beta = 0.95.
-Which of the following is the closest to the long run average volatility?

Accepted Answer

A)  1.1%
B)  1.2%
C)  1.3%
D)  1.4%E) A) and B)
F) All of the above

Question 12

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 A at the end of Friday?

Accepted Answer

A)  0.98%
B)  0.95%
C)  0.92%
D)  0.90%E) C) and D)
F) B) and C)

Question 13

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?

Accepted Answer

A)  0.000090
B)  0.000081
C)  0.000100
D)  0.000095E) A) and C)
F) A) and B) A

Question 14

At the end of Thursday,the estimated volatility of asset A is 2% per day.During Friday asset A produces a return of 3%.An EWMA model with lambda equal to 0.9 is used.What is an estimate of the volatility of asset A at the end of Friday?

Accepted Answer

A)  2.08%
B)  2.10%
C)  2.12%
D)  2.14%E) A) and B)
F) A) and C)

Question 15

The parameters in a GARCH (1,1) model are: omega =0.000002, alpha = 0.04,and beta = 0.95.
-The current estimate of the volatility level is 1% per day.What is the expected volatility in 20 days?

Accepted Answer

A)  1.09%
B)  1.10%
C)  1.11%
D)  1.12%E) A) and C)
F) A) and B)

Question 16

Which of the following is true

Accepted Answer

A)  EWMA is a particular case of GARCH (1,1)  where the reversion rate is zero
B)  EWMA has a lower reversion rate than GARCH (1,1) , but it is not zero
C)  EWMA has a higher reversion rate than GARCH (1,1) 
D)  Sometimes EWMA has a higher reversion rate than GARCH (1,1)  and sometimes it has a lower reversion rate than GARCH (1,1) .E) All of the above
F) B) and C)

Question 17

How many parameters are necessary to define an EWMA model

Accepted Answer

A)  1
B)  2
C)  3
D)  4E) None of the above
F) All of the above

Question 18

How many parameters are necessary to define a GARCH (1,1) model

Accepted Answer

A)  1
B)  2
C)  3
D)  4E) None of the above
F) A) and C)

Question 19

If the volatility for a portfolio is 20% per year,what is the volatility per quarter?

Accepted Answer

A)  20%
B)  10%
C)  5%
D)  2%E) A) and D)
F) None of the above B

Question 20

Which of the following is true

Accepted Answer

A)  GARCH models incorporate mean reversion; EWMA models do not
B)  EWMA models incorporate mean reversion; GARCH models do not
C)  Both GARCH and EWMA models incorporate mean reversion
D)  Neither GARCH nor EWMA models incorporate mean reversionE) C) and D)
F) A) and B)

Exam 23: Estimating Volatilities and Correlations

The parameters in a GARCH (1,1) model are: omega =0.000002, alpha = 0.04,and beta = 0.95. -The current estimate of the volatility level is 1% per day.If we observe a change in the value of the variable equal to 2%,how does the estimate of the volatility change

Correct AnswerverifiedShow Answer

Which of the following is true of a positive semi-definite variance-covariance matrix

Correct AnswerverifiedD

Which of the following is a definition of the covariance between X and Y?

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Which of the following is true

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Which of the following is true

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Which of the following is true

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Which of the following is true of maximum likelihood methods

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The parameters in a GARCH (1,1) model are: omega =0.000002, alpha = 0.04,and beta = 0.95.What is the reversion rate for the variance rate implied by the model

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What does EWMA stand for?

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Which of the following is true when the parameter lambda equals 0.95?

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The parameters in a GARCH (1,1) model are: omega =0.000002, alpha = 0.04,and beta = 0.95. -Which of the following is the closest to the long run average volatility?

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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 A at the end of Friday?

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedA

At the end of Thursday,the estimated volatility of asset A is 2% per day.During Friday asset A produces a return of 3%.An EWMA model with lambda equal to 0.9 is used.What is an estimate of the volatility of asset A at the end of Friday?

Correct AnswerverifiedShow Answer

The parameters in a GARCH (1,1) model are: omega =0.000002, alpha = 0.04,and beta = 0.95. -The current estimate of the volatility level is 1% per day.What is the expected volatility in 20 days?

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Which of the following is true

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How many parameters are necessary to define an EWMA model

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How many parameters are necessary to define a GARCH (1,1) model

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If the volatility for a portfolio is 20% per year,what is the volatility per quarter?

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Which of the following is true

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D

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A

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B

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