ARCH and GARCH Models
Chapter 7: Lesson 2
Learning Outcomes
Explain the concept of volatility in time series
- Define volatility and its importance in financial and climate time series
- Identify patterns of volatility in time series plots
Interpret ARCH and GARCH models
- Define ARCH models and their extensions, including GARCH models
- Understand the role of ARCH/GARCH models in capturing time-varying volatility
Simulate and fit GARCH models using R
- Simulate GARCH processes using R
- Fit GARCH models to time series data using R
- Interpret the R output for GARCH models, including coefficients and model diagnostics
Apply GARCH modeling to real-world time series
- Use GARCH models to analyze volatility in financial time series
- Apply GARCH models to climate time series to understand changing variability
- Incorporate GARCH models into forecasts and simulations for improved accuracy
Preparation
- Read Sections 7.4-7.5
Learning Journal Exchange (10 min)
Review another student’s journal
What would you add to your learning journal after reading another student’s?
What would you recommend the other student add to their learning journal?
Sign the Learning Journal review sheet for your peer
Class Activity: ARCH Models (xxx min)
Heteroskedasticity
Definition of ARCH Models
Definition of GARCH Models
Class Activity: Fitting a ARCH and GARCH Models (xxx min)
Small-Group Activity: Fitting a ARCH and GARCH Models (xxx min)
Homework Preview (5 min)
- Review upcoming homework assignment
- Clarify questions