Volatility Trading and Arbitrage Strategies › Key Parameters
Michael BrenndoerferDecember 30, 20251 min read
Quantitative FinanceAll chapters Part 11 of 15Quantitative Trading Strategies
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The key parameters for volatility forecasting models (like GARCH) are:
- ω (omega): Baseline variance. The long-term floor for volatility.
- α (alpha): Reaction parameter. Determines how much yesterday's shock impacts today's volatility.
- β (beta): Persistence parameter. Determines how long shocks linger in the variance process (memory).
- Returns: The time series of asset returns used to estimate parameters.