Essentials of Time Series for Financial Applications

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which is one more case of augmented GARCH and in which ${\mathbf{X}}_t$ is a vector of predetermined variables that may as well include implied volatility. More details on this model, together with an example, can be found online.

5.4 Testing for ARCH

In Section 5.2.4 and Example 5.10, we have introduced and used two common methods to assess the appropriateness of a CH model. While the second of such methods implied the specification and estimation of one regression, the first approach—based on the idea that under correct specification of the CH framework, ...