Suppose that the parameters in a GARCH (1.1) model are a 0.03, 8-0.95, and -0.000002

(a) What is the long-com 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?

(c) What volatility should be used to price 20, 40-, and 60-day options?

(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? Make estimates using both equation (19.14) and equation (19.15).