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Financial Risk Manager Part 1

Financial Risk Manager Part 1

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A junior market risk analyst is studying the Exponentially Weighted Moving Average (EWMA) method for estimating volatility. This method is known for applying different weights to past returns, with more recent returns receiving higher weights, making them more influential on the volatility estimate. The analyst observes that the squared return of the most recent day plays a crucial role in updating the EWMA calculation. Which of the following statements correctly describes an aspect of this method?

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