ARCH. An econometrics model used to analyze and predict volatility. Fluctuations in volatility tend to be grouped into clusters when viewed over time. The calculation of the ARCH model will take the historical data clusters and use them to calculate future volatility by looking at how probability distributions relate to a variable, such as price. For example, an investor using the Black-Scholes Option Pricing Model can use ARCH to examine the volatility of the underlying asset.

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