Question: Suppose that ut follows the ARCH process, a. Let E(ut2) = var(ut) be the unconditional variance of ut. Show that var(ut) = 2. b. Suppose

Suppose that ut follows the ARCH process,

a. Let E(ut2) = var(ut) be the unconditional variance of ut. Show that var(ut) = 2.
b. Suppose that the distribution of ut conditional on lagged values of ut is N(0, Ïƒ2t). If ut-1 = 0.2, what is Pr(-3 ‰¤ ut ‰¤ 3)? If Î¼t-1 = 2.0, what is Pr(-3 ‰¤ ut ‰¤ 3)?

1.0+ 0.5ui

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