What is volatility clustering in financial returns? Explain how GARCH models can be used to capture...
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What is volatility clustering in financial returns? Explain how GARCH models can be used to capture volatility clustering in financial returns. (5) (b) Let X, be a zero-mean time series, and let its conditional variance of be defined by the following GARCH (3, 2) model, o=2+0.201 +0.30-2 +0.10+ 0.2X₁ +0.2X2-2 Find the steady-state variance of X₁. Show each step in your calculation. (c) Let a zero-mean time series Y, follow a conditional normal distribution and let its variance of be defined by the following GJR-GARCH model, o=1+0.201 +0.2X1+0.4X11(Y-1 <0} Find the the steady-state variance of Y. Show each step in your calculation. (d) Find the one-step-ahead and two-step-ahead forward GARCH variance fore- casts for the GARCH (3, 2) model defined in part (b) and the GJR-GARCH model defined in part (c). (5) (5) (5) What is volatility clustering in financial returns? Explain how GARCH models can be used to capture volatility clustering in financial returns. (5) (b) Let X, be a zero-mean time series, and let its conditional variance of be defined by the following GARCH (3, 2) model, o=2+0.201 +0.30-2 +0.10+ 0.2X₁ +0.2X2-2 Find the steady-state variance of X₁. Show each step in your calculation. (c) Let a zero-mean time series Y, follow a conditional normal distribution and let its variance of be defined by the following GJR-GARCH model, o=1+0.201 +0.2X1+0.4X11(Y-1 <0} Find the the steady-state variance of Y. Show each step in your calculation. (d) Find the one-step-ahead and two-step-ahead forward GARCH variance fore- casts for the GARCH (3, 2) model defined in part (b) and the GJR-GARCH model defined in part (c). (5) (5) (5)
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a Volatility clustering refers to the tendency for large changes in a financial time series returns ... View the full answer
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