What is the long-run average monthly volatility

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Question

Suppose that in a GARCH(1,1) model, ω = 0.000003 (or 3*10 -6 ), α = 0.015, β = 0.97.

(a) What is the long-run average daily variance? What is the long-run average monthly volatility? Assume that there are 21 trading days in a month.

(b) If the current daily volatility is 0.5% per day, what is your estimate of the annualized volatility in 10, 30, and 50 days? Is your estimate increasing or decreasing in number of days? Briefly explain why it is increasing or decreasing.

Reference no: EM132466104

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