6. a) What is volatility clustering? What is ARCH & GARCH model? Explain in brie
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6. a) What is volatility clustering? What is ARCH & GARCH model? Explain in brief? dPi dxi If the log of odds of an event occurring is one, then find out the probability of the occurrence of that event. What will be the probability when the log of odds of occurring of that event is b) Show the marginal effect of logit model is P P)B 4 zero d) Show ARIMA (0,0,2) & ARIMA(0,0,0) model is always stationary e) How we can make random walk model (with & without drift) stationary. Show your 4 calculation.Explanation / Answer
6) a) In financial markets there is a tendency for large changes in prices of financial assets to cluster together. Due to this large change in prices, there will be persistence in the price change. It is the observation that shows that large changes are followed by large changes.
ARCH models are used to describe changes in volatile variance and are a model for variance of time series. ARCH is autoregressive conditionally heteroscedastic.
GARCH is generalized autoregressive conditional heteroskedasticity and is an ARMA model assumed for error variance.
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