Which one of the following problems in finance could not be usefully addressed by either a univariate or a multivariate GARCH model?
A) Producing option prices
B) Producing dynamic hedge ratios
C) Producing time-varying beta estimates for a stock
D) Producing forecasts of returns for use in trading models
(e) Producing correlation forecasts for value at risk models

Question

Quizplus · Accepted Answer

GARCH models are primarily used for modeling volatility and not directly for forecasting returns. They are useful for options pricing, dynamic hedging, estimating time-varying betas, and forecasting correlations for risk models, but not for directly forecasting returns.

Which One of the Following Problems in Finance Could Not