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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

Explanation:

In a GARCH(1,1) model, the long-run variance ( $V_L$ ) is given by the formula: $V_L = \frac{\omega}{1 - \alpha - \beta}$ Substituting the given parameters: $V_L = \frac{0.0005}{1 - 0.01 - 0.98} = \frac{0.0005}{0.01} = 0.05$ The long-run volatility is the square root of the long-run variance: $\text{Volatility} = \sqrt{0.05} \approx 0.2236$

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Financial Risk Manager Part 1

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Q.93 A generalized autoregressive conditional-heteroskedastic (GARCH)(1,1) model has the following parameters: ω=0.0005\omega = 0.0005ω=0.0005; α=0.01\alpha = 0.01α=0.01; β=0.98\beta = 0.98β=0.98 The implied long-run volatility level is closest to:

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: