ARCH

ARCH, which stands for AutoRegressive Conditional Heteroskedasticity, is a statistical model used to analyze financial data that shows periods of high and low volatility, such as stock prices. It assumes that the variability (or uncertainty) of returns today depends on past variability. When markets are volatile, ARCH captures this changing risk level by adjusting variance estimates based on recent data. This helps in better understanding and forecasting financial market risks, especially during turbulent times. Essentially, ARCH models help quantify how past market swings influence current unpredictability, aiding in more accurate risk management and financial analysis.