Volatility modeling is a statistical approach used to estimate the degree of variation in the price of financial assets over time. It helps investors and analysts understand how much the price of an asset, like stocks or commodities, might fluctuate. Common models include GARCH (Generalized Autoregressive Conditional Heteroskedasticity) and ARCH (Autoregressive Conditional Heteroskedasticity), which focus on predicting future volatility based on past price movements. These models are essential for risk management, as they allow traders to assess potential losses and make informed decisions. By understanding volatility, market participants can better strategize their investments and hedge against unexpected price changes.