Modelling Good and Bad Volatility

What is it about?

In finance positive and negative returns have opposite impacts on investments, but volatility models tend to treat returns as symmetrically distributed and, thus, do not differentiate between good volatility (the second moment of positive returns) and bad volatility (the second moment of negative returns). In this article, I propose a generalization of the GARCH model that allows good volatility and bad volatility to evolve in separate ways.

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Why is it important?

My model allows the making of portfolios that favor take good volatility and penalize bad volatility.