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You would use GARCH to account for stochastic volatility in a time series of returns. However, the returns time series may have components other than that can be explained by stochastic vol, such as trends or moving average. Therefore, ARMA or AR or some such series is used to de-trend. In risk managment it can be used for back testing, calculating VaR or ...


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Are you working with futures data (mixing rate futures with equity futures) OR allocating between macro instruments? If so, using non-linear variants of GARCH (GJR-GARCH, TGARCH etc.) are common way to solve your risk parity allocation issue that you might be facing. One common related issue is not that the volatility to a couple of instruments drop ...



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