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Market Risk [15]

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Bullet points include: N.B. Alternative spelling: heteroskedasticity. Financial returns are often not independent over time. Volatility seems to be forecastable. Does not mean that can make money from this – there is, at any point in time, a ‘term structure’ to implied volatility and risk appetite may change. Large absolute magnitude returns today tend to be followed by larger than average absolute magnitude returns tomorrow. Standard approach to modelling this is to employ Generalised Autoregressive Conditional Heteroscedasticity (GARCH) models

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