Suppose that we have estimated a GARCH model for daily equity returns, and we are interested in producing a 10-day forecast of the volatility (measured by the standard deviation of returns) for use in a value at risk model. How could such a forecast most validly be calculated?
(A)Produce 1, 2, 3, ..., 10 step ahead conditional variance forecasts and add them up (B)Produce 1, 2, 3, ..., 10 step ahead conditional variance forecasts and add them up and take the square root (C)Produce 1, 2, 3, ..., 10 step ahead conditional variance forecasts, take the square roots of each one and add them up (D)Produce a 1-step ahead conditional variance forecast, take its square root and multiply it by the square root of 10
B