Modeling Volatility and GARCH Family › Key Parameters
Michael BrenndoerferDecember 10, 20251 min read
Quantitative FinanceAll chapters Part 8 of 15Econometrics and Statistical Modeling
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- ω (omega): Constant baseline variance term, must be positive
- α (alpha): ARCH parameter measuring impact of past squared shocks (news), with higher values indicating more sensitivity to recent events
- β (beta): GARCH parameter measuring persistence of past variance, with higher values meaning volatility clusters last longer
- γ (gamma): Asymmetry parameter (in GJR-GARCH), where positive values indicate negative shocks increase volatility more than positive shocks
- ν (nu): Degrees of freedom for the Student-t distribution, with lower values indicating fatter tails and higher probability of extreme events
- α + β: Persistence measure, with values close to 1 indicating volatility shocks decay very slowly