Extreme Events – Specimen Question A.4.1
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Question and Answer Summary
You are an investor trying to understand better the
behaviour of Index B in A.2.1.
You think that it is likely to be best modelled by an AR(1) autoregressive
model along the lines of with
random independent identically distributed normal error terms .
(a) 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
(b) Do these evolving
estimates of appear to be stable? How would you test such an assertion
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