Explanation:
The solution shows that the correct answer is A. The key characteristic of EWMA (Exponentially Weighted Moving Average) is that it does not include a long-run average variance component, unlike GARCH models. EWMA only uses the previous variance estimate and the most recent squared return, with the weight assigned to the long-run average variance being zero.
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The EWMA model does not involve the long-run average variance in updating volatility, in other words, the weight assigned to the long-run average variance is zero. Only the current estimate of the variance is used. The other statements are all correct.
A
B