A) Why is the conditional variance a good measure of uncertainty? B) Outline the GARCH model and GARCH-M model. C) Outline one of the extensions to the basic GARCH family of model
A) Why is the conditional variance a good measure of uncertainty? B) Outline the GARCH model and GARCH-M model. C) Outline one of the extensions to the basic GARCH family of model
Chapter1: Taking Risks And Making Profits Within The Dynamic Business Environment
Section: Chapter Questions
Problem 1CE
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Question
A) Why is the conditional variance a good measure of uncertainty?
B) Outline the GARCH model and GARCH-M model.
C) Outline one of the extensions to the basic GARCH family of models
Expert Solution

Introduction
The expectation of a random variable's squared deviation from its population mean or sample mean is known as variance in probability theory and statistics.
An uncorrelated but dependent process is one in which the conditional mean is constant but the conditional variance is nonconstant, such as the GARCH processes. The process is dependent because the conditional variance is dependent on the past.
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