In the financial world, volatility is synonymous to risk. So any investment decision must factor in the volatility of the financial asset in question. As financial data usually comes in the form of time series, we use various analysis tools to capture the correlation that exists in the series.
AR, MA and ARMA processes can be used to model some of the correlation in the series, however, they fail to capture an important peculiarity of financial time series called volatility clustering. To factor that in we use the ARCH and GARCH models.
Volatility hence discovered can be used to generate a practically convenient indicator like VaR which can be used to assess the risk profile in a simple manner.
Presentation: Abhiruchi and Amit pawar & Mentored: Sumanjay. | Access link to presentation files
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