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Q4 abc GARCH Model, Suppose that in a GARCH(1,1) model, = 0.000003 (or 3*10-6) and persistence is 97%.a) (2 points) What is the long-run average
Q4 abc GARCH Model, Suppose that in a GARCH(1,1) model, ω = 0.000003 (or 3*10-6) and persistence is 97%.a) (2 points) What is the long-run average daily variance? What is the long-run average monthlyvolatility? Assume that there are 21 trading days in a month.b) (4 points) If the current daily volatility is 0.5% per day, what is your estimate of the annualizedvolatility in 10, 30, and 50 days? Is your estimate increasing or decreasing in number of days?Briefly explain why it is increasing or decreasing.c) (4 points) If the current daily volatility is 0.5% per day, what is your estimate of the annualizedvolatility to price 10-day, 30-day, and 50-day options
