Q.93 A generalized autoregressive conditional-heteroskedastic (GARCH)(1,1) model has the following parameters: $\omega = 0.0005$; $\alpha = 0.01$; $\beta = 0.98$ The implied long-run volatility level is closest to: | Financial Risk Manager Part 1 Quiz - LeetQuiz
Financial Risk Manager Part 1
Explanation:
In a GARCH(1,1) model, the long-run variance (VL) is given by the formula:
VL=1−α−βω
Substituting the given parameters:
VL=1−0.01−0.980.0005=0.010.0005=0.05
The long-run volatility is the square root of the long-run variance:
Volatility=0.05≈0.2236
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Q.93 A generalized autoregressive conditional-heteroskedastic (GARCH)(1,1) model has the following parameters: ω=0.0005; α=0.01; β=0.98 The implied long-run volatility level is closest to:
