12-FinEcon-Model Sel Page 350 Wednesday, February 4, 2004 12:59 PM
350 The Mathematics of Financial Modeling and Investment Management■ State-of–the-art nonlinear econometric models use an autoregressive
process to drive the parameters of another model.
■ ARCH/GARCH models use an ARMA model to drive the volatility
parameter.
■ Markov switching models use a Markov chain to drive the parameters
of an autoregressive model.