Models — Arch

The Black-Scholes model assumes constant volatility—which traders know is false. GARCH-based option pricing models (e.g., Heston-Nandi) better capture the volatility smile.

Next time you see a market flash crash or a sudden calm, remember: it’s not randomness. It’s conditional heteroskedasticity in action. Have you used GARCH models in production? Or do you prefer modern alternatives like stochastic volatility or deep learning? Let me know in the comments. arch models

This matches reality. After the COVID crash in March 2020, the VIX (fear index) stayed above 25 for nearly six months. 1. Risk Management If you assume volatility is constant, your Value at Risk (VaR) will be wrong 90% of the time. GARCH models give you dynamic VaR—higher during crises, lower during calm periods. It’s conditional heteroskedasticity in action