The parameters in a GARCH (1,1) model are: omega =0.000002, alpha = 0.04, and beta = 0.95 . The current estimate of the volatility level is 1% per day. What is the expected volatility in 20 days?
A. 1.09%
B. 1.10%
C. 1.11%
D. 1.12%
A
The long run average variance rate is 0.000002/(1−0.04−0.95)=0.0002 . The expected variance rate in 20 days is 0.0002+(0.04+0.95)20×(0.012-0.0002) = 0.000118 . The volatility per day is the square root of this or 1.09%.
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