Anon

222 The Basics of financial economeTrics

0 200 400 600 800 1,000

−5

−4

−3

−2

−1

0

1

2

3

4

5

Time Steps

Returns

FIGure 11.5 Simulated ARCH(3) Return Process with Parameters c = 0.1, a 1 = 0.6,
a 2 = 0.2, and a 3 = 0.1

FIGure 11.6 Plot of Volatility Relative to Figure 11.5

0 200 400 600 800 1,000

0

0.5

1

1.5

2

2.5

3

3.5

4

4.5

Time Steps

Volatility