Autoregressive conditional heteroskedasticity

In econometrics, autoregressive conditional heteroscedasticity(ARCH) models are used to characterize and model time series. They are used at any point in a series where 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.