Exercise

# Plot distribution of standardized residuals

GARCH models make distribution assumptions of the standardized residuals. Recall residuals are the differences between predicted returns and the mean returns. And standardized residuals are the residuals divided by the model estimated volatility.

In this exercise, you will practice computing the standardized residuals from a fitted GARCH model, and then plot its histogram together with a standard normal distribution `normal_resid`

.

A GARCH model has been defined and fitted with S&P 500 price return data. The fitted result can be accessed as `gm_result`

. In addition `matplotlib`

has been preloaded as `plt`

.

Instructions

**100 XP**

- Obtain model estimated residuals and save it in
`gm_resid`

. - Obtain model estimated volatility and save it in
`gm_std`

. - Calculate the standardized residuals
`gm_std_resid`

. - Plot a histogram of
`gm_std_resid`

.