Learning Quantitative Finance with R

ARIMA

ARIMA stands for autoregressive integrated moving average models. Generally, it is defined by the equation ARIMA(p, d, q).

Here,

• p is the order of the autoregressive model
• d is the order required for making the series stationary
• q is the order of moving average

The very first step in ARIMA is to plot the series, as we need a stationary series for forecasting.

So let us first plot the graph of the series by executing the following code:

> PriceData<-ts(StockData$Adj.Close, frequency = 5) 
> plot(PriceData) 

This generates the following plot:

Figure 4.9: Plot of price data

Clearly, upon inspection, the series seems to be nonstationary, so we need to ...