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Quantitative Finance · Glossary

What is EWMA volatility?

Definition 18.4 Quantitative Methods · Chapter 18 — Volatility Models

The EWMA volatility with decay λ\lambda is ht=λht−1+(1−λ)rt−12h_t = \lambda h_{t-1} + (1 - \lambda)r_{t-1}^2: an exponentially weighted average of past squared returns. RiskMetrics (1996) set λ=0.94\lambda = 0.94 for daily data.

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