Use the methodology described in this chapter

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Create a GARCH(1,1) Simulator in Excel

Use the calibrated parameters of Problem 4-3.
Generate 65,000 paths for 100 days.
One must prove that the resulting model creates MC paths with a kurtosis of the 100^th-day MC return that approximately matches the inputs based on the calibrated parametersaand β. The match depends upon the convergence of the MC simulation. The more paths one has, the better the convergence.

1. Find μ from = μ?t where ?t =.

2. Find s from E[(r¹-)²] = σ²?t.

4. Use the methodology described in this chapter to calibrate a and β.

5. Provide a graph of the theoretical versus empirical autocorrelation fit as in Figure 4-7.

6. Provide a graph of the term structure of volatility using (4.113).

Reference no: EM131086881

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