Basic Introduction to GARCH and EGARCH (part 3)

Here is the final part of the series of posts on the volatility modelling where I will briefly talk about one of the many variant of the GARCH model: the exponential GARCH (abbreviated EGARCH). I chose this variant because it improves the GARCH model and better model some market mechanics. In the GARCH post, I … Continue reading “Basic Introduction to GARCH and EGARCH (part 3)”

Basic Introduction to GARCH and EGARCH (part 2)

As promised in last post, we will look at a popular implementation of the GARCH(1,1) model: the value-at-risk. I chose this implementation because it is used quite often in academic literature and for its educational purpose. The value-at-risk, also abbreviated VaR, is a measure of the risk for a portfolio. To recap, the 1 percent … Continue reading “Basic Introduction to GARCH and EGARCH (part 2)”

Basic Introduction to GARCH and EGARCH (part 1)

As request by several readers in light of the previous series of post on using GARCH(1,1) to forecast volatility, here is a very basic introduction post on two models widely used in finance: the GARCH and EGARCH. One of the great tools of statistics used in finance is the least square model (not exclusively the … Continue reading “Basic Introduction to GARCH and EGARCH (part 1)”

Volatility Forecasting Using GARCH(1,1)

Continuing on the current series of post, I was at the point of forecasting volatility. There is several ways to just that; this very topic is the subject of a lot of research in finance. Different models to model volatility are available and they range from both ends of the complexity spectrum. I am going … Continue reading “Volatility Forecasting Using GARCH(1,1)”

Regime Switching System Using Volatility Forecast

In the same line of thoughts as last post, today we will look at a way to incorporate the GARCH volatility model we introduced yesterday to create a regime switching strategy. It is often discussed on the blogosphere that high volatility is good for daily MR, see previous editions of the state of short-term mean-reversion … Continue reading “Regime Switching System Using Volatility Forecast”