This document summarizes key concepts about stationary stochastic processes:
1. There are two main types of stationarity - strong stationarity and weak stationarity. Strong stationarity concerns shift-invariance of finite-dimensional distributions over time, while weak stationarity concerns invariance of mean, variance, and covariance.
2. A strongly stationary process has the same joint distribution for random variables shifted over time. An example of a strongly stationary process is the i.i.d. stock price change process.
3. A weakly stationary process has finite and time-invariant mean and variance, and covariance that depends only on the time difference between variables. Random walks are an example of a non-stationary process
This document summarizes key concepts about stationary stochastic processes:
1. There are two main types of stationarity - strong stationarity and weak stationarity. Strong stationarity concerns shift-invariance of finite-dimensional distributions over time, while weak stationarity concerns invariance of mean, variance, and covariance.
2. A strongly stationary process has the same joint distribution for random variables shifted over time. An example of a strongly stationary process is the i.i.d. stock price change process.
3. A weakly stationary process has finite and time-invariant mean and variance, and covariance that depends only on the time difference between variables. Random walks are an example of a non-stationary process
This document summarizes key concepts about stationary stochastic processes:
1. There are two main types of stationarity - strong stationarity and weak stationarity. Strong stationarity concerns shift-invariance of finite-dimensional distributions over time, while weak stationarity concerns invariance of mean, variance, and covariance.
2. A strongly stationary process has the same joint distribution for random variables shifted over time. An example of a strongly stationary process is the i.i.d. stock price change process.
3. A weakly stationary process has finite and time-invariant mean and variance, and covariance that depends only on the time difference between variables. Random walks are an example of a non-stationary process
This document summarizes key concepts about stationary stochastic processes:
1. There are two main types of stationarity - strong stationarity and weak stationarity. Strong stationarity concerns shift-invariance of finite-dimensional distributions over time, while weak stationarity concerns invariance of mean, variance, and covariance.
2. A strongly stationary process has the same joint distribution for random variables shifted over time. An example of a strongly stationary process is the i.i.d. stock price change process.
3. A weakly stationary process has finite and time-invariant mean and variance, and covariance that depends only on the time difference between variables. Random walks are an example of a non-stationary process
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POST GRADUATE TEACHING
DEPARTMENT OF STATISTICS Rashtrasant Tukadoji Maharaj Nagpur University, Nagpur
Seminar Topic:- Stationary Stochastic
Processes Presented By:- Guided By:- Minal Sunilrao Chalakh Dr(Mrs) M.N.Deshpande MSc Statitics Sem 2 ma’am Content Introduction Stationary stochastic processes Strong stationary process and example Weak stationary process and example Relation between strong and weak Stationary stochastic process Stationarity is a rather intuitive concept, it means that the statistical properties of the process do not change over time. There are two important forms of stationarity: 1 strong stationarity; 2 weak stationarity. • Strong stationarity concerns the shift- invariance (in time) of its finite-dimensional distributions.
• Weak stationarity only concerns the shift-
Strongly stationary stochastic processes
Definition. The process {xt ;t ∈ Z} is strongly
stationary if Ft1+k,t2+k,··· ,ts+k (b1, b2, · · · , bs ) = Ft1,t2,··· ,ts (b1, b2, · · · , bs ) for any finite set of indices {t1,t2, · · · ,ts} ⊂ Z with s ∈ Z +, and any k ∈ Z. Thus the process {xt ;t ∈ Z} is strongly stationary if the joint distibution function of the vector (xt1+k , xt2+k , ..., xts+k ) is equal with the one of (xt1 , xt2 , ..., xts ) for for any finite set of indices {t1,t2, · · · ,ts} ⊂ Z with s ∈ Z +, and any k ∈ Z The meaning of the strongly stationarity is that the distribution of a number of random variables of the stochastic process is the same as we shift them along the time index axis. If {xt ;t ∈ Z} is a strongly stationary process, then x1, x2, x3, ... have the same distribution function. (x1, x3), (x5, x7), (x9, x11), ..... have the same joint distribution function and further (x1, x3, x5), (x7, x9, x11), (x13, x15, x17), ... must have the same joint distribution function, and so on. Example. Under efficient capital market hypothesis, the stock price change is an iid process. This means that the stock price change is unpredictable from previous stock price changes. Consider the discrete stochastic process {xt ;t ∈ N} where xt = A, with A ∼ U (3, 7) (A is uniformly distributed on the interval [3, 7]). This process is of course strongly stationary Consider the discrete stochastic process {xt ;t ∈ N} where xt = tA, with A ∼ U (3, 7) This process is not strongly stationary If the second moment of xt is finite for all t, then the mean E(xt), the variance var(xt) = E[(xt − E(xt))2 ] = E(x 2 t ) − (E(xt))2 and the covariance cov(xt1 , xt2 ) = E[(xt1 − E(xt1 ))(xt2 − E(xt2 ))] are finite for all t, t1 and t2 Weakly stationary stochastic processes Definition The process {xt ;t ∈ Z} is weakly stationary, or covariance-stationary if
(1) the second moment of xt is finite for all t,
that is E|xt | 2 < ∞ for all t
(2) the first moment of xt is independent of t,
that is E(xt) = µ ∀t
(3) the cross moment E(xt1 xt2 ) depends only
on t1 − t2, that is cov(xt1 , xt2 ) = cov(xt1+h, Example : An important example of weakly non-stationary stochastic processes is the following. Let {yt ;t = 0, 1, 2, ...} be a stochastic process where y0 = δ < ∞ and yt = yt−1 + ut for t = 1,2,..., with ut ∼ WN(0, σ2 u ). This process is called random walk. The mean of yt is given by E(yt) = δ and its variance is Var(yt) = tσ 2 u Thus a random walk is not weakly stationary process Relation between strong and weak stationarity If the process {xt ;t ∈ Z} is strongly stationary and has finite second moment, then {xt ;t ∈ Z} is weakly stationary. PROOF. If the process {xt ;t ∈ Z} is strongly stationary, then ..., x−1, x0, x1, ... have the same distribution function and (xt1 , xt2 ) and (xt1+h, xt2+h) have the same joint distribution function for all t1, and t2 and h. Because, by hypothesis, the process {xt ;t ∈ Z} has finite second moment, Of thiscourse impliesa weakly stationary that E(xt) process, xt2 = µ ∀t cov(xt1 is not )= necessarily strongly cov(xt1+h, xt2+h) stationary. ∀t1,t2, h Thank you
