Tag Archives: volatility clustering

garch models caught in the spotlight

An attempt to clarify the basics. Previously There have been several posts about garch.  In particular: A practical introduction to garch modeling The components garch model in the rugarch package Genesis A reader emailed me because he was confused about the workings of garch in general, and simulation with the empirical distribution in particular. If … Continue reading

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garch and the Algorithmic Trading Conference

The Imperial College Algorithmic Trading Conference was Saturday. Talks Massoud Mussavian Massoud gave a great talk on “Algo Evolution”.  It started with a historical review of how trading used to be done “by hand”.  It culminated in a phylogenetic tree of trading algorithms.  There was an herbivore branch and a carnivore branch. Robert Macrae Robert … Continue reading

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Variance targeting in garch estimation

What is variance targeting in garch estimation?  And what is its effect? Previously Related posts are: A practical introduction to garch modeling Variability of garch estimates garch estimation on impossibly long series The last two of these show the variability of garch estimates on simulated series where we know the right answer.  In response to … Continue reading

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garch estimation on impossibly long series

The variability of garch estimates when the series has 100,000 returns. Experiment The post “Variability of garch estimates” showed estimates of 1000 series that were each 2000 observations long.  Here we do the same thing except that the series each have 100,000 observations. That would be four centuries of daily data.  It’s not presently feasible … Continue reading

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Variability of garch estimates

Not exactly pin-point accuracy. Previously Two related posts are: A practical introduction to garch modeling garch and long tails Experiment 1000 simulated return series were generated.  The garch(1,1) parameters were alpha=.07, beta=.925, omega=.01.  The asymptotic variance for this model is 2.  The half-life is about 138 days. The simulated series used a Student’s t distribution … Continue reading

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garch and long tails

How much does garch shorten long tails? Previously Pertinent blog posts include: “A practical introduction to garch modeling” “The distribution of financial returns made simple” “Predictability of kurtosis and skewness in S&P constituents” Induced tails Part of the reason that the distributions of returns have long tails is because of volatility clustering.  It’s not really … Continue reading

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A practical introduction to garch modeling

We look at volatility clustering, and some aspects of modeling it with a univariate GARCH(1,1) model. Volatility clustering Volatility clustering — the phenomenon of there being periods of relative calm and periods of high volatility — is a seemingly universal attribute of market data.  There is no universally accepted explanation of it. GARCH (Generalized AutoRegressive … Continue reading

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