I would like some help with a GARCH(1,1) volatility modeling.
I am working with the assumption the volatility is the weighted sum of three factors: Long run variance + $n-1$ squared return + $n-1$ variance
If that is accurate, my doubt is, what is the difference between the 1st and 3rd parts of the equation? I was reading it as $n-1$ variance being the historical variance of the moving window I am using. However, that seems to me the same as long run variance.
Can anyone clarify that for me?