What is the long run average volatility

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Reference no: EM131239723

Suppose that the parameters in a GARCH (1,1) model are and

(a) What is the long-run average volatility?

(b) If the current volatility is 1.5% per day, what is your estimate of the volatility in 20, 40, and 60 days?

(d) Suppose that there is an event that increases the current volatility by 0.5% to 2% per day. Estimate the effect on the volatility in 20, 40, and 60 days.

(e) Estimate by how much the event increases the volatilities used to price 20-, 40-, and 60-day options?

Reference no: EM131239723

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