Time Series Models: Smoothing, AR, and ARCH

Free SOA Exam SRM (Statistics for Risk Modeling) lesson in Time Series Models. 25 min read, ~3,772 words.

Exponential smoothing forecasts via a weighted average of past values, weights decaying geometrically by smoothing constant. Larger reacts faster; smaller is more stable. Holt extends simple smoothing to capture trend; Holt-Winters adds seasonality (using a level, trend, and seasonal smoothing constant). An AR(p) model regresses on its own p most...