qingshu

 

The correct answer is B

For internal consistency, the covariance consistency condition requires that the method that is used to estimate portfolio volatility also has to be the method used to estimate the portfolio covariance matrix.

qingshu

 

13、Which of the following is/are a shortcoming(s) when using the normal distribution for estimating GARCH(1,1) parameters?

I. Parameters such as volatility often exhibit mean reverting characteristics. 

II. Maximum likelihood estimation with a normal distribution is not tractable.

III. Financial and economic data series often do not follow a normal distribution.

IV. Maximum likelihood estimation with a normal distribution will never generate a local maxima.

A) III only.

B) I, III, and IV only.

C) II and IV only.

D) I and II only.

qingshu

 

The correct answer is A

Using a normal distribution as the assumed probability generating process is only appropriate if the underlying data follow a normally distributed process. Most financial and economic time series exhibit substantial deviations from normally distributed processes. Note that maximum likelihood estimators select values for model parameters that maximize the likelihood that observed data will occur in a sample. The maximum likelihood method can be used with any type of probability distribution. Mean reversion characteristics of parameters would not be considered a shortcoming for using the normal distribution.

qingshu

 

14、RiskMetrics uses the following value for the decay factor of daily data:

A) 0.92.

B) 0.94.

C) 0.95.

D) 0.97.

qingshu

 

11、A portfolio manager is using an exponentially weighted moving average (EWMA) model to forecast volatility for a particular market parameter. What is the implication of an EWMA weighting parameter value of 0.84?

A) A greater weight is placed on the most recent change in parameter value than on the previous volatility estimate.

B) An equal weight is placed on the previous volatility estimate as on the most recent change in parameter value.

C) A greater weight is placed on the previous volatility estimate than on the most recent change in parameter value.

D) More information is required to determine the implication.

qingshu

 

The correct answer is C

The EWMA weighting parameter of 0.84 indicates that a weighting of 0.84 will be placed on the previous volatility estimate and a weighting of 0.16 will be placed on the most recent change in the parameter value.

qingshu

 

The correct answer is C

 

 

 

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[2008] Topic 10: Quantifying Volatility in VAR Models 相关习题

2009-6-27 11:24

qingshu

 

8、Consider the following four GARCH equations:

Equation 1: σ2n = 0.83 + 0.05μ2n-1 + 0.93σ2n-1

Equation 2: σ2n = 0.06 + 0.04μ2n-1 + 0.95σ2n-1

Equation 3: σ2n = 0.60 + 0.10μ2n-1 + 0.94σ2n-1

Equation 4: σ2n = 0.03 + 0.03μ2n-1 + 0.93σ2n-1

Which of the following statements regarding these equations is (are) CORRECT?

I.Equation 1 is a stationary model.

II.Equation 2 shows no mean reversion

III.Volatility will revert to a long run mean level faster with Equation 1 than it will for Equation 4.

IV.Volatility will revert to a long run mean level faster with Equation 3 than it will for Equation 2.

A) I only.

B) III only.

C) II and III only.

D) II and IV only.

qingshu

 

The correct answer is A

The format of the GARCH equation is σ2n = ω + αμ2n-1 + βσ2n-1, where (α + β) = persistence. For a model to be stationary over time, the persistence must be less than one. A persistence of one means there is no mean reversion and the higher the persistence, the longer it will take for volatility to revert to a long run mean level following a large shock or movement. The persistence for Equation 2 is (0.04 + 0.95) = 0.99, which is less than one meaning there is mean reversion. The persistence for Equation 1 is higher than that of Equation 3, meaning mean reversion will take longer for Equation 1. Because the persistence for Equation 1 is less than one, Equation 1 is a stationary model. Equation 3 has a persistence greater than one, which mean the model shows no mean reversion. Only Statement III is correct.

qingshu

 

9、GARCH(1,1) (generalized autoregressive conditional heteroskedastic) models of volatility may be useful for option traders because they:

A) provide efficient estimates of past volatility.

B) are useful in forecasting future volatility

C) are the simplest volatility models to estimate.

D) are used in the Black-Scholes option pricing model.