Exercise 7.8 Suppose that the estimated parameters of a GARCH(1,1) are = 0.0005, = 1.5

Exercise 7.8 Suppose that the estimated parameters of a GARCH(1,1) are μ = 0.0005,

ω = 1.5 × 10−7, β = .81 and α = .17. Here we assume the innovations and of the form εi = (i −ν)/

√

ν, with i ∼ Gamma(ν, 1). Suppose the estimation of

ν is 5.2. What are the corresponding parameters of the associated stochastic volatility model? Write also the two stochastic differential equations satisfied by S and V . What is the correlation between the two Brownian motions?