ARCH Models and Financial Applications

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The book delves into the evolution of time series models, particularly focusing on ARCH (Autoregressive Conditionally Heteroscedastic) models, introduced by Engle in 1982. It critiques traditional ARMA models for their linearity and lack of structural constraints, which limit their application in financial contexts characterized by nonlinear dynamics and volatility. The text emphasizes the significance of ARCH models in addressing these issues, enabling a deeper exploration of statistical theory, financial analysis, and empirical research, with numerous studies highlighting their relevance.