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Tutorial 01

This document is a tutorial for the Financial Time Series course at the University of Ruhuna, outlining problems related to financial mathematics and statistics. It includes tasks on variance, covariance, autocovariance, stationarity, and identification of ARIMA models. Students are required to submit their answers by December 3, 2024.

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Sand Rukshan
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36 views1 page

Tutorial 01

This document is a tutorial for the Financial Time Series course at the University of Ruhuna, outlining problems related to financial mathematics and statistics. It includes tasks on variance, covariance, autocovariance, stationarity, and identification of ARIMA models. Students are required to submit their answers by December 3, 2024.

Uploaded by

Sand Rukshan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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UNIVERSITY OF RUHUNA

DEPARTMENT OF MATHEMATICS
b.sc.honours in financial mathematics and industrial statistics
MFM3113: Financial Time Series (level III)

Tutorial No.01 Semester I, 2024


Submit answer sheets on or before : 03/12/2024

1. SupposeE(X) = 2, V ar(X) = 9, E(Y ) = 0, V ar(Y ) = 4, and Corr(X, Y ) = 0.25. Find:

(a) V ar(X + Y ).
(b) Cov(X, X + Y ).
(c) Corr(X + Y, X − Y ).

2. SupposeYt = 5 + 2t + Xt , where Xt is a zero-mean stationary series with autocovariance


function γk .

(a) Find the mean function for Yt .


(b) Find the autocovariance function for Yt .
(c) Is Yt stationary? Why or why not?

3. Use first principles to find the autocorrelation function for the stationary process defined
by
1 1
Yt = 5 + et − et−1 + et−2
2 4

4. Identify the following as specific ARIMA models. That is, what are p, d, and q and what
are the values of the parameters (the ϕ’s and θ’s)?

(a) Yt = Yt−1 − 0.25Yt−2 + et − 0.1et−1 .


(b) Yt = 2Yt−1 − Yt−2 + et .

5. Consider the ARMA(1,1) process,

Xt = −0.6Xt−1 + Zt + 0.3Zt−1

where Zt is White Noise process. Is this process Stationary and Invertible?

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