Using the EWMA model for variance: $\sigma_n^2 = \lambda \sigma_{n-1}^2 + (1 - \lambda) u_{n-1}^2$

Where: $\sigma_{n-1} = 2\%$ $u_{n-1} = 3\%$ $\lambda = 0.75$

$\sigma_n^2 = 0.75 \times (2\%)^2 + (1 - 0.75) \times (3\%)^2$ $\sigma_n^2 = 0.75 \times 4\%^2 + 0.25 \times 9\%^2$ $\sigma_n^2 = 3 + 2.25 = 5.25\%^2$

The new volatility estimate is: $\sigma_n = \sqrt{5.25\%^2} \approx 2.291\%$