Financial Risk Manager Part 1

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Explanation:

\text{Cov}_n = \lambda \times \text{cov}_{n-1} + (1 - \lambda) X_{n-1} \times Y_{n-1}

But first, we must determine $\text{Cov}_{n-1}$

We know that

\text{Cov}_{xy} = \rho_{xy} \times \sigma_x \sigma_y

\text{Cov}_{n-1} = 0.66 \times 0.029 \times 0.035 = 0.0006699

And

\text{Cov}_n = .85 \times 0.0006699 + 0.15 \times 0.05 \times 0.03 = 0.0008

Explanation:

\text{Cov}_n = \lambda \times \text{cov}_{n-1} + (1 - \lambda) X_{n-1} \times Y_{n-1}

But first, we must determine $\text{Cov}_{n-1}$

We know that

\text{Cov}_{xy} = \rho_{xy} \times \sigma_x \sigma_y

\text{Cov}_{n-1} = 0.66 \times 0.029 \times 0.035 = 0.0006699

And

\text{Cov}_n = .85 \times 0.0006699 + 0.15 \times 0.05 \times 0.03 = 0.0008

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Last updated: May 21, 2026 at 04:19

0.5612

0.0008

0.0011

0.0014