The parameters in a GARCH (1,1)model are: omega =0.000002,alpha = 0.04,and beta = 0.95.The current estimate of the volatility level is 1% per day.What is the expected volatility in 20 days?
A) 1.09%
B) 1.10%
C) 1.11%
D) 1.12%

Question

Quizplus · Accepted Answer

The long run average variance rate is 0.000002/(1−0.04−0.95)=0.0002.The expected variance rate in 20 days is 0.0002+(0.04+0.95)²⁰×(0.01²-0.0002)= 0.000118.The volatility per day is the square root of this or 1.09%.

The Parameters in a GARCH (1,1)model Are: Omega =0