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Business, 20.07.2021 05:00 arturocarmena10

An option trader is attempting to judge whether an option's premium is cheap or expensive. To do so, he employs a GARCH(1,1) model to forecast volatility. The particular model he estimates has an intercept term equal to 0.000005, a parameter estimate on the latest estimate of variance of 0.85, and a parameter estimate on the latest innovation of 0.13. If the latest volatility estimate from the model were 2.2% per day and the option's underlying asset changed 3%, the trader's estimate of the next period's standard deviation is closest to:

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An option trader is attempting to judge whether an option's premium is cheap or expensive. To do so,...
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