Question: Consider a Garch(1,1) process, ( t ) 2 =+( r t-1 ) 2 +( t-1 ) 2 , if + <1 and the current volatility

Consider a Garch(1,1) process, (_t)²=+(r_t-1)²+(_t-1)² , if +<1 and the current volatility is smaller than the long run volatility, the volatility term structure estimated from this Garch(1,1) has:

A downward-sloping curve and then becomes a straight line

An upward-sloping curve

A flat Curve

A downward-sloping curve

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