GARCH (Generalized ARCH)

GARCH (Generalized Autoregressive Conditional Heteroskedasticity) is a statistical model used to analyze and forecast the variability of financial data, such as stock returns or currency rates. It recognizes that periods of high volatility (large fluctuations) tend to cluster together, followed by calmer periods. GARCH models this by allowing the current level of volatility to depend on past errors and past volatility, enabling more accurate predictions of how much prices might fluctuate in the future. This helps investors and analysts better understand and manage financial risks.