Questions from Business Statistics

Q: The parameters of a GARCH(1,1) model are

The parameters of a GARCH(1,1) model are estimated as
,
, and
. What is the long-run average volatility and what is the equation describing the way that the variance rate reverts to its long-run ave...

Q: Suppose that the current daily volatilities of asset X and asset Y

Suppose that the current daily volatilities of asset X and asset Y are 1.0% and 1.2%, respectively. The prices of the assets at close of trading yesterday were $30 and $50 and the estimate of the coef...

Q: Suppose that the daily volatility of the FTSE 100 stock index (

Suppose that the daily volatility of the FTSE 100 stock index (measured in pounds sterling) is 1.8% and the daily volatility of the dollar/sterling exchange rate is 0.9%. Suppose further that the corr...

Q: Suppose that in Problem 23.12 the correlation between the S

Suppose that in Problem 23.12 the correlation between the S&P 500 Index (measured in dollars) and the FTSE 100 Index (measured in sterling) is 0.7, the correlation between the S&P 500 Index (measured...

Q: The payoff from a derivative will occur in 8 years. It

The payoff from a derivative will occur in 8 years. It will equal the average of the 1-year risk-free interest rates observed at times 5, 6, 7, and 8 years applied to a principal of $1,000. The risk-f...

Q: Show that the GARCH (1,1) model
1in

Show that the GARCH (1,1) model 1in equation (23.9) is equivalent to the stochastic volatility model , where time is measured in days, V is the square of the volatility of the asset price, and What is...

Q: At the end of Section 23.8, the VaR and

At the end of Section 23.8, the VaR and ES for the four-index example were calculated using the model-building approach. How do the VaR and ES estimates change if the investment is $2.5 million in eac...

Q: Suppose that the LIBOR/swap curve is flat at 6%

Suppose that the LIBOR/swap curve is flat at 6% with continuous compounding and a 5-year bond with a coupon of 5% (paid semiannually) sells for 90.00. How would an asset swap on the bond be structured...

Q: Explain why the impact of credit risk on a matched pair of

Explain why the impact of credit risk on a matched pair of interest rate swaps tends to be less than that on a matched pair of currency swaps.

Q: ‘‘When a bank is negotiating currency swaps, it should try

‘‘When a bank is negotiating currency swaps, it should try to ensure that it is receiving the lower interest rate currency from companies with low credit risk.’’ Explain why.