In
econometrics,
autoregressive conditional heteroskedasticity (ARCH) models are used to characterize and model
time series. They are used at any point in a series, the error terms are thought to have a characteristic size or
variance. In particular ARCH models assume the variance of the current
error term or
innovation to be a function of the actual sizes of the previous time periods' error terms: often the variance is related to the squares of the previous
innovations.