Exercise

Make forecast with GARCH models

Previously you have implemented a basic GARCH(1,1) model with the Python arch package. In this exercise, you will practice making a basic volatility forecast.

You will again use the historical returns of S&P 500 time series. First define and fit a GARCH(1,1) model with all available observations, then call .forecast() to make a prediction. By default it produces a 1-step ahead estimate. You can use horizon = n to specify longer forward periods.

The arch package has been preloaded for you.

Instructions 1/2

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Define a basic GARCH(1,1) model basic_gm.
Fit the model.