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xt = 1 + 2 t + Zt
(t = 1, 2, 3, ...)
(1)
2 where 1 and 2 are known constants and Zt is a white noise process with variance Z .
As the mean function depends on time and is not constant, xt is non-stationary. 2. Show that the process yt = xt xt1 is stationary. We need to check the three requirements of a stationary process given in the handouts.
E(yt ) = E(xt xt1 ) = E(1 + 2 t + Zt (1 + 2 (t 1) + Zt1 )) = 2 where we used that E(Zt ) = 0 t. So the mean function is constant. Also, yt has a nite second moment since it is a sum of two random variables with nite second moments. The only thing left to verify is that the auto covariance function is only a function of the lag h, and does not depend on time t.
(t, t + h) = Cov(yt , yt+h ) = E[yt yt+h ] E[yt ]E[yt+h ] Working with the rst part of (2) we have the following result:
(2)
E[yt yt+h ] = E[(xt xt1 )(xt+h xt+h1 )] = E[(Zt + 2 Zt1 )(Zt+h + 2 Zt+h1 )]
2 = E[Zt Zt+h ] E[Zt Zt+h1 ] + 2 + E[Zt1 Zt+h1 ]
if h = 0 if h = 1 else
Thus the auto covariance function does not depend on time t. Therefore, yt is stationary. 3. Show that the mean of the moving average 1 vt = 2q + 1
q
xtj
j=q
(3)
E(vt ) =
j=q
1 E(xtj ) = 2q + 1
q
E(1 + 2 (t j) + Ztj )
j=q
= 1 +
2 2q + 1
(t j) = 1 + 2 t +
j=q
2 2q + 1
j = 1 + 2 t
j=q
E[vt vt+h ] =
1 E[ (2q + 1)2
xtj
j=q
2 = 1 + 21 2
1 (2q + 1)2
q
j=q q q
E[xtj xt+hi ]
j=q i=q q q
... +
2 1
2 2
1 (2q + 1)2
j=q i=q q
1 (2q + 1)2
(h + j i) + ...
j=q i=q 2 Z
1 (2q + 1)2
1{h+ji=0}
j=q i=q
+ 21 2 t + 1 2 h +
+ h) +
1 (2q + 1)2
1{h+ji=0}
j=q i=q
Also:
Using above results, we can simplify the expression for the autocovariance function of vt as:
q q
2 Z
1 (2q + 1)2
1{h+ji=0} =
j=q i=q
2 Z 2q+1h (2q+1)2 0
if |h| 2q else