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Suppose that the parameters in a GARCH ( 1 , 1 ) model are = 0 . 0 3 , = 0 . 9 5
Suppose that the parameters in a GARCH model are and
a What is the longrun average volatility?
b If the current volatility is per day, what is your estimate of the volatility in
and days?
c What volatility should be used to price and day options? Hint: use
dSuppose that there is an event that increases the volatility from per day to
per day. Estimate the effect on the volatility in and days.
eEstimate by how much the event increases the volatilities used to price and
day options.Suppose that the parameters in a GARCH model are alpha beta and omega
a What is the longrun average volatility?
b If the current volatility is per day, what is your estimate of the volatility in and days?
c What volatility should be used to price and day options? Hint: use alpha ln
dSuppose that there is an event that increases the volatility from per day to per day. Estimate the effect on the volatility in and days.
eEstimate by how much the event increases the volatilities used to price and day options.
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