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5.2time Series

ARIMA models, which stand for Auto-Regressive Integrated Moving Average, consist of three components: autoregression (AR), differencing (I), and moving average (MA). The model is represented as ARIMA(p, d, q), where p, d, and q are integer parameters indicating the lag order, degree of differencing, and order of moving average, respectively. Autoregressive models explain the current value of a series as a linear combination of past values and a random error.

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12 views3 pages

5.2time Series

ARIMA models, which stand for Auto-Regressive Integrated Moving Average, consist of three components: autoregression (AR), differencing (I), and moving average (MA). The model is represented as ARIMA(p, d, q), where p, d, and q are integer parameters indicating the lag order, degree of differencing, and order of moving average, respectively. Autoregressive models explain the current value of a series as a linear combination of past values and a random error.

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ARIMA Models

• ARIMA is an acronym that stands for Auto-Regressive


Integrated Moving Average. Specifically,
– AR Autoregression. A model that uses the dependent
relationship between an observation and some number of
lagged observations.
– I Integrated. The use of differencing of raw observations in
order to make the time series stationary.
– MA Moving Average. A model that uses the dependency
between an observation and a residual error from a moving
average model applied to lagged observations.
• Each of these components are explicitly specified in the model
as a parameter.
• Note that AR and MA are two widely used linear models that
work on stationary time series, and I is a preprocessing
procedure to “stationarize” time series if needed.

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Notations

• A standard notation is used of ARIMA(p, d, q) where the


parameters are substituted with integer values to quickly
indicate the specific ARIMA model being used.
– p The number of lag observations included in the model, also
called the lag order.
– d The number of times that the raw observations are
differenced, also called the degree of differencing.
– q The size of the moving average window, also called the order
of moving average.
• A value of 0 can be used for a parameter, which indicates to
not use that element of the model.
• In other words, ARIMA model can be configured to perform
the function of an ARMA model, and even a simple AR, I, or
MA model.

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Autoregressive Models

• Intuition
– Autoregressive models are based on the idea that current value
of the series, Xt , can be explained as a linear combination of p
past values, Xt−1 , Xt−2 , . . . , Xt−p , together with a random
error in the same series.
• Definition
– An autoregressive model of order p, abbreviated AR(p), is of
the form
p
X
Xt = φ1 Xt−1 + φ2 Xt−2 + · · · + φp Xt−p + wt = φi Xt−i + wt
i=1

where Xt is stationary, wt ∼ wn(0, σw2 ), and φ1 , φ2 , . . . , φp


(φp 6= 0) are model parameters. The hyperparameter p
represents the length of the “direct look back” in the series.

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