Question

why might ARMA models be considered useful for financial time series?

Answer 1

ARMA or Auto Regressive Moving Average model is combination of two models : Auto Regressive Model and Moving Average model. Although both these models are used in time series modelling but both of these models are not very useful when we talk about log return of stock prices. Sometime we need a model which can describe the dynamic structure of the data and at that time using any of these models will become cumbersome

Few Benefits of using ARMA model :

1. ARMA model require less parameters as compared to AR or MA model alone so less complexity

2. This model is highly relevant for volatility modelling

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