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2. (30 points) Suppose that the daily log return of a security follows the model rt = 0.02 +0.5rt-2 + et where {e} is a
Posted: Mon Jul 11, 2022 11:17 am
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- 2 30 Points Suppose That The Daily Log Return Of A Security Follows The Model Rt 0 02 0 5rt 2 Et Where E Is A 1 (56.65 KiB) Viewed 26 times
2. (30 points) Suppose that the daily log return of a security follows the model rt = 0.02 +0.5rt-2 + et where {e} is a Gaussian white noise series with mean zero and variance0.02. What are the mean and variance of the return series rt? Compute the lag-1 and lag-2 autocorrelations of rt. Assume that r100 = -0.01, and r99 = 0.02. Compute the 1- and 2-step-ahead forecasts of the return series at the forecast origin t = 100. What are the associated standard deviation of the forecast errors?