medium · FRM Part 1
An EWMA variance update is performed. If the current squared return r^2_t-1 is exactly equal to the previous variance estimate σ^2_t-1, what will be the new volatility estimate?
- It will increase by a factor of (1-λ).
- It will converge toward the long-run average of the series.
- It will decrease because λ is less than 1.
- It will remain identical to the previous volatility estimate.
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