Question 7 (Mandatory) (10 points) Service Below is the VLAB GARCH presentation of the Nikkei Index. The earthquake happened on March 11, 2011. A) What was the effect of the Japanese earthquake on equity values? B) What was the effect of the Japanese earthquake on equit volatility? C) Why do you think volatility became roughly normal after several months? V-Lab (2011) 80 70 6C Nikkei 225 - GJR-GARCH Vol Prediction Lab (2011) 10% 60 SOS Annualized Volatility 404 30% arch 20% 10% Nikkel 225 GR-GARCH Vol Prediction 5% 0% -5% -10% Jan '10 Apr '10 Jul '10 Oct '10 Jan '11 Apr '11 Jul '11 Oct '11