Extreme Events – Specimen Question
A.4.1(a) – Answer/Hints
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Q. Estimate the value of c 16
times, the first time assuming that you only have access to the first 5
observations, the next time you only have access to the first 6 observations,
etc.
In each estimation, the value of c can be estimated
as the slope of the best fit line in a standard linear regression (e.g. using
the function SLOPE in Microsoft Excel or the MnSlope Nematrian web function).
[N.B. Some refinement of this would be needed if the model were the simpler one
since
this is equivalent to the constrained regression where the line of best fit is
forced to pass through the origin.]
Using logged returns, these values of c are:
Estimation up to and including period

Estimated value of c

5

0.3354190

6

0.4051569

7

0.3408570

8

0.3844843

9

0.0505541

10

0.1635878

11

0.1143870

12

0.0408473

13

0.2354016

14

0.3187719

15

0.3548701

16

0.3061011

17

0.3293394

18

0.3233795

19

0.3163910

20

0.3218388

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