3. (14 points) Suppose that the monthly log return of a security rt follows the GARCH(1,1) model rt: = 0.1 + at, at = Ot

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3 14 Points Suppose That The Monthly Log Return Of A Security Rt Follows The Garch 1 1 Model Rt 0 1 At At Ot 1 (76.42 KiB) Viewed 26 times

3. (14 points) Suppose that the monthly log return of a security rt follows the GARCH(1,1) model rt: = 0.1 + at, at = Otet, of = 0.01 + 0.227-1 + 0.30-1, = where {Et} is a Gaussian white noise series with mean zero and variance 1. a (a) Compute the mean and variance of the return series rt. (6 points) (b) Compute the 1-step- and all the multistep-ahead forecasts of conditional variance of at the forecast origin t = h. (8 points) =