- CFA Exams
- CFA Exam: Level II 2021
- Study Session 2. Quantitative Methods (1)
- Reading 6. Time-Series Analysis
- Subject 5. Autoregressive conditional heteroskedasticity models

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**CFA Practice Question**

Assume a time series model has ARCH (1) errors. The variance of the errors in period t + 1 is modeled as σ

_{t+1}^{2}= 5.2 + 0.35 σ_{t}^{2}. If the variance of the errors in one period is 2, the predicted variance of the error in the next period should be ______.Correct Answer: 5.9

5.2 + 0.35 x 2 = 5.9.

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