Reddit

Q.2837 The Dow correlation matrices for a given data set today have an average correlation of 0.1645 with a long-term mean of 0.1972. Compute the expected correlation for exactly one year from today if the average mean reversion is 0.7512. | Financial Risk Manager Part 2 Quiz - LeetQuiz

Explanation:

Using equation:
$S_t - S_{t-1} = a\mu_s - aS_{t-1}$

Then:
$S_t = a(\mu_s - s_{t-1}) + S_{t-1}$

Where $a = 0.7512$ , $\mu_s = 0.1972$ , $S_{t-1} = 0.1645$

Therefore,
$S_t = 0.7512(0.1972 - 0.1645) + 0.1645 = 0.1891 = 18.91\%$

Comments (0)

No comments yet.

Financial Risk Manager Part 2

Get started today

Comments (0)

Get started today

Comments (0)

Q.2837 The Dow correlation matrices for a given data set today have an average correlation of 0.1645 with a long-term mean of 0.1972. Compute the expected correlation for exactly one year from today if the average mean reversion is 0.7512.