EWMA Volatility Interview Guide
EWMA volatility interview guide covering exponential weights, decay, responsiveness, smoothing, examples, and limitations.
Candidates explaining simple volatility models and decay weighting.
EWMA weights recent returns more heavily
An exponentially weighted volatility estimate gives more importance to recent squared returns while older observations decay smoothly.
The decay parameter controls responsiveness
A faster decay reacts quickly to shocks but can be noisy, while slower decay is smoother but may lag regime changes badly.
Concrete example
After a volatility spike, a fast EWMA estimate jumps quickly and then decays as calmer returns replace the shock in the weighted history.
It is a baseline, not a full model
EWMA is transparent and easy to explain, but it may miss leverage effects, jumps, seasonality, and regime-specific behavior.
Common mistakes
Candidates often quote a decay value without justification. Tie the parameter to horizon, asset behavior, and forecast evaluation.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.