medium · FRM Part 1 Quantitative Analysis
A GARCH(1,1) model has α = 0.10 and β = 0.85. If the analyst wishes to double the speed of mean reversion while keeping the long-run variance constant, how should the persistence (α + β) change?
- The persistence should increase to 0.975.
- The persistence should remain at 0.95 but ω should double.
- The persistence should be exactly 1.00.
- The persistence should decrease.
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