Question

Assume that S\&P 500 at close of trading yesterday was 1,040 and the daily volatility of the index was estimated as $1 \%$ per day at that time. The parameters in a GARCH$(1,1)$ model are $\omega=0.000002, \alpha=0.06$, and $\beta=0.92$. If the level of the index at close of trading today is 1,060 , what is the new volatility estimate?

   Assume that S\&P 500 at close of trading yesterday was 1,040 and the daily volatility of the index was estimated as $1 \%$ per day at that time. The parameters in a GARCH$(1,1)$ model are $\omega=0.000002, \alpha=0.06$, and $\beta=0.92$. If the level of the index at close of trading today is 1,060 , what is the new volatility estimate?

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Options, Futures, and Other Derivatives

Options, Futures, and Other Derivatives

John C. Hull 10th Edition

Chapter 23, Problem 8

Instant Answer

Step 1

The daily return is calculated as the percentage change in the index level from yesterday to today. In this case, the index level at close of trading yesterday was 1,040 and the level at close of trading today is 1,060. Therefore, the daily return is: Daily Show more…

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Assume that S\&P 500 at close of trading yesterday was 1,040 and the daily volatility of the index was estimated as $1 \%$ per day at that time. The parameters in a GARCH$(1,1)$ model are $\omega=0.000002, \alpha=0.06$, and $\beta=0.92$. If the level of the index at close of trading today is 1,060 , what is the new volatility estimate?

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