Without descending into theoretical debate, your statement is simply false. Had you said "Having nice closed-form solutions has little to do with trading or making money", then I would have agreed with you. There are numerous applications of GARCH that are in wide use by practitioners, including but not limited to (generally) GARCH as a component of VAR analysis, and GARCH as a component of option pricing. That being said, "the model is only as good as the mathematician". One cannot blindly apply GARCH or any other model without the required fundamental and theoretical background. In that sense, I agree that GARCH is of "zero use" to a "seat of the pants trader". As to the initial poster's question, GARCH and other volatility models cannot be neatly summarized in a paragraph or two on a public message board. You need to develop a fundamental and theoretical background to in order to understand, evaluate, and apply these models in practice. Otherwise, you are wasting your time. For a "seat of the pants" starting point, see the following links: http://en.wikipedia.org/wiki/Volatility http://en.wikipedia.org/wiki/Stochastic_volatility -segv
wrong as usual. for starters, why would I be "pissed off at you?" That's like Angelina Jolie being mad at someone else for being ugly. Note: it's a rhetorical question. no reply necessary or sought.
Your style of expression is really very feminine. I would guess that you are so pussy whipped at home that you will do anything to avoid having someone bitchslap you around here. If in future you find a way to re-attach your balls, I will be glad to debate any questions you might have about your hero Jesus. I'll wait right here for you to get permission. Steve
MoMoney, I totally agree with you. If GARCH doesn't provide any better predicting ability than ATM IV, I will say that it is not useful. Even a lot of option traders (i mean successful traders) use this model, it doesn't mean GARCH provides a better prediction. I know a lot of top traders drink a lot of coffee , it doesn't mean drinking coffee gives you an edge in trading. I tried, and it didn't work for me. LOL.
Because volatility tends to cluster, I find GARCH applications to be useful in forecasting volatility when the shit hits the fan. I also know that pro desks look at GARCH and knowing they are looking at it is reason enough.