A risk manager estimates daily variance o, using a GARCH model on daily returns u;: o? = w + auf-, + Bo?-1, with w = 0.00005; a = 0.04; ß = 0.94. The long-run annualized volatility is approximately a) 13.54% b) 7.94% c) 72.72% d) 25.00%

A risk manager estimates daily variance o, using a GARCH model on daily returns u;: o? = w + auf-, + Bo?-1, with w = 0.00005; a = 0.04; ß = 0.94. The long-run annualized volatility is approximately a) 13.54% b) 7.94% c) 72.72% d) 25.00%

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

A risk manager estimates daily variance o; using a GARCH model on daily returns u;: o? =
w + au?-1 + Bož-1, with w = 0.00005; a = 0.04; ß = 0.94. The long-run annualized
volatility is approximately
a) 13.54%
b) 7.94%
c) 72.72%
d) 25.00%
GARCH model is ( sigma_t)^2 = omega
+alpha* (u_(t-1)^2 +beta*(sigma_(t-1))^2
omega=0.00000005 not 0.00005

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