In today’s world, parents are extremely observant about how their children are learning. Be it academics or music or sport any other field that the child has developed a semblance of liking, the parent gives and seeks all the guidance available to make his/her kid’s learning process effective. Given the hyperconnected instant gratification world that we are all living it, Kids left to their own devices, become just that, in the literal sense.

[youtube https://www.youtube.com/watch?v=XNbaR54Gpj4?list=UUAuUUnT6oDeKwE6v1NGQxug]

The paper titled, “Answering the Skeptics : Yes, Standard Volatility models do provide accurate forecasts” is a classic paper on volatility modeling by Andersen and Bollerslev. What’s this paper about ? If you build a volatility model, How do you go about testing it ? This is the key question answered in the paper. At a daily frequency or intraday frequency, returns do not show serial correlation. However there is a serial dependency amongst them.

Crisis hits financial markets at regular intervals but the market participants keep assuming that they “understand the behavior” of markets and are in “total control” of the situation until the day things crash. There is an army of portfolio managers, equity research analysts, macro analysts, low frequency quants,derivative modeling quants, high frequency quants etc., all trying to understand the markets and trying to make money out of it. Do their gut /intuitive/quant models come close to how the market behaves ?

This paper is just 8 pages long but conveys an important point about random walk tests. The paper analyzes the use of variance and absolute variation as measures of volatility while testing a series for random walk. The paper suggest the following plot : for different values of zeta. For zeta=1 ,one ends up using absolute variation and for zeta=2, one ends up using variance. If the time series has fat tails, it might happen that variance ratio plots do not show anything fishy.