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A junior risk analyst is modeling the volatility of a certain market variable and is trying to decide between EWMA and GARCH(1,1) models. Which of the following statements about the two models is correct?
A
The EWMA model is a special case of the GARCH(1,1) model with the additional assumption that the long-run volatility is zero.
B
A variance estimated from the GARCH(1,1) model is a weighted average of the prior day's estimated variance and the prior day's squared return.
C
The GARCH(1,1) model assigns a higher weight to the prior day's estimated variance than the EWMA model.
D
A variance estimated from the EWMA model is a weighted average of the prior day's estimated variance and the prior day's squared return.
