BU.232.630.W6.SP25 Quiz 3 solutions

Consider the following model for the mean and volatility of asset returns rt: rt=βht+εt εt= √ ht ut ht=μ*+ϕ * 1 ε 2 t−1 +ϕ * 2 ε 2 t−2 +ϕ * 3 ε 2 t−3 𝔼t−1(ut)=0 𝔼t−1(u 2 t )=1 What is the conditi...