medium · FRM Part 1 Quantitative Analysis
A risk analyst is required to store the minimum amount of data to maintain a volatility series.
Why is the EWMA model particularly efficient for this task compared to a simple 250-day rolling average?
- The EWMA only requires storing the current variance and the most recent return to compute the next period's estimate.
- The EWMA model uses a shorter look-back period, typically only 30 days.
- The EWMA model does not require the calculation of returns, only price levels.
- The EWMA model automatically excludes days with zero returns to save storage space.
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