solution

This problem uses monthly observations of the two-month yield, that is, YT with T equal to two months, in the data set Irates in the Ecdat package. The rates are log-transformed to stabilize the variance. To fit a GARCH model to the changes in the log rates, run the following R code.

(a) What model is being fit to the changes in r? Describe the model in detail.

(b) What are the estimates of the parameters of the model?

(d) What is the estimated ACF of a_t?

(e) What is the estimated ACF of a²_t?

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