@railpath/finance-toolkit/dist/risk/calculateEWMAVolatility.js

Production-ready finance library for portfolio construction, risk analytics, quantitative metrics, and ML-based regime detection

"use strict";
Object.defineProperty(exports, "__esModule", { value: true });
exports.calculateEWMAVolatility = calculateEWMAVolatility;
/**
 * Exponentially Weighted Moving Average (EWMA) volatility
 * More weight on recent observations
 *
 * @param returns Historical returns
 * @param lambda Decay factor (typically 0.94 for RiskMetrics)
 */
function calculateEWMAVolatility(returns, lambda) {
    if (lambda <= 0 || lambda >= 1) {
        throw new Error('Lambda must be between 0 and 1');
    }
    let variance = Math.pow(returns[0], 2); // Initialize with first squared return
    for (let i = 1; i < returns.length; i++) {
        variance = lambda * variance + (1 - lambda) * Math.pow(returns[i], 2);
    }
    return Math.sqrt(variance);
}