Hybrid Approach

[narayananvenkat]

David..

I am uncomfortble on the mechanics of this problem

ten Lowest No of Past
Rank returns %t periods Hybrid weights
1 -4.3 7 0.0318
2 -3.9 10 0.0282
3 -3.7 15 0.023
4 -3.5 20 0.0187
5 -3 17 0.0212
6 -2.9 28 0.0135
7 -2.6 32 0.0115
8 -2.5 18 0.0203
9 -2.4 55 0.0045
10 -2.3 62 0.0034


k=100
λ = .96

Find 0ut vaRfor the 5th percentile using the hybrid approach closest to
A -3.90%
B -4.04%
C -4.30%
D -4.10%

venkat

 

[David Harper CFA FRM]

Hi venkat,

I dropped it into a subset of the hybrid vol learning xls (4.a.3)
See here: http://sheet.zoho.com/public/btzoho/1009-hybrid-vol
(answer: -4.04%)

it's mostly an interpolation problem (i.e., to find the return corresponding to 5% cumulative) but you can see in column E how the problem's hybrid weights are calculated, too (by applying EWMA) ... let me know if you need further clarification..thanks, David