medium · FRM Part 1 Quantitative Analysis
If α + β = 1 in a GARCH(1,1) model with a positive ω, what is the characteristic of the variance process?
- The model simply reduces to a standard EWMA volatility model.
- The implied long-run variance level effectively becomes zero.
- The variance is non-stationary and will grow without bound over time.
- The variance will mean-revert, but only extremely slowly toward its target.
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