Time Varying Volatility and GARCH in Risk Management
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- เผยแพร่เมื่อ 19 ก.ย. 2024
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In Todays video let's learn about time varying volatility and GARCH in risk management
Follow Patrick on Twitter Here: / patrickeboyle
What Is Time-Varying Volatility?
Time-varying volatility refers to the changes in market volatility over different time periods. Investors may choose to study or consider volatility of an underlying security during various time periods. The use of time-varied volatility measures can influence the expectations of investments.
How Time-Varying Volatility Works
Time-varying volatility can be studied in any time-frame. Generally, volatility analysis requires mathematical modeling to generate volatility levels as one measure of the risk of an underlying security. This type of modeling generates historical volatility statistics.
What is the GARCH Process?
The generalized autoregressive conditional heteroskedasticity (GARCH) process is an econometric term developed in 1982 by Robert F. Engle, an economist and 2003 winner of the Nobel Memorial Prize for Economics, to describe an approach to estimate volatility in financial markets. There are several forms of GARCH modeling. The GARCH process is often preferred by financial modeling professionals because it provides a more real-world context than other forms when trying to predict the prices and rates of financial instruments.
Heteroskedasticity describes the irregular pattern of variation of an error term, or variable, in a statistical model. Essentially, where there is heteroskedasticity, observations do not conform to a linear pattern. Instead, they tend to cluster. The result is that the conclusions and predictive value one can draw from the model will not be reliable. GARCH is a statistical model that can be used to analyze a number of different types of financial data, for instance, macroeconomic data. Financial institutions often use this model to estimate the volatility of returns for stocks, bonds and market indices. They use the resulting information to help determine pricing and judge which assets will potentially provide higher returns, as well as to forecast the returns of current investments to help in their asset allocation, hedging, risk management and portfolio optimization decisions.
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This channel is by far the best finance channel on youtube.
Glad I found it.:)
Thanks! Glad you enjoy it!
pun indended?? :P
You know, when I started being "interested in finance" if you could call it that, i.e. lying my way to a bucketshop forex account in some mediterranean island while being a young-ish teen, i basically instantly noticed these volatility cluster patterns in the behaviour of bollinger bands. About a decade later, I finally see why that is (and have figured out that it wasn't some form of divine insight on my end).
Thanks Patrick, keep up the good work!
I loved how you showed the waves and the surfers while talking about the correlation in the volatility levels in consecutive days. In fact, wave heights are correlated which means a big wave is more likely to be followed by another big wave and this is something you can easily notice when you're in the sea. My thesis was in the likelihood of wave trains with high waives to appear and the probability of a ship to capsize due to that phenomenon.
Just a message to thank you for this videos, I'm very happy to found it, please continue, you are the best
You know a video is good if you can understand concepts easily with just words and without pictures
Nicely done, what I like most about this video is how clearly you communicate such dense concepts
Nice. Great explanation Patrick. May I request a video on the asymmetric methods you stated exist; are they related to affine functions in any way? Love the content 👍🏻
I liked these old videos! I was trying to implement GARCH today... Looks like i have a lot of learning to do. Oh boy.
Top ten and unboxing videos would increase the liquidity of views therefore decrease the Vol. So I'd stick to the above videos and increase the Vol.
LOL funny guy Pat. Loved the video. Thanks
Thanks Jordan. Just watched your Ed Seykota video. Good work!
@@PBoyle Thanks Pat! You keep up the good work as well! I think you are the only person on youtube that gives good lessons on volatility.
TOP 10 WAYS TO IMPROVE YOUR VAR (GONE VOLATILE) (GIVEAWAY IN DESCRIPTION) (#2 WILL SHOCK YOU)
I think this videos would be much easier to follow if you added more formulas and visual examples to explain the concepts, I often have to pause and replay to understand what you are talking about. I love the contents btw.
Thanks Marcelo. I'm planning on adding more visual examples in the upcoming videos.
Great video series. Do risk professionals use implied volatility from options to forecast vol?
Is this the same as FHS VaR?
Your presentation skills have improved lol
Hahaha guilty 🤣 great stuff thanks for the lessons friend.
You should do a top ten list of most insane trading strategies of tick tock/twitter/insta......break them down,because people are getting roasted listening to these guys
I use the GOOCH method myself.....GARCH is old school. When my Gooch tightens too tight, I sell. I learned that on tick tock! Who needs an MBA