Afdeling Wiskunde Tentamen Time Series

Vrije Universiteit June 9 2010

When it says “derive” or “prove” give a short, but complete argument. When it says
“show” you may refer to theorems. The 7 problems have equal weight.

1. Let (Xt ) be the stationary, causal solution to the equation

Xt = φXt−1 + Zt + θZt−1 ,
for an i.i.d. sequence (Zt ) with mean zero and variance 1 and numbers φ ∈ (−1, 1) and θ ∈ R.
a. Derive that E(Xt − φXt−1 )Xt−2 = 0 and E(Xt − φXt−1 )Xt−1 = θ.
b. Use these equations to define moment estimators for θ and φ.
c. Show that these moment estimators are asymptotically consistent.
d. Indicate the main steps in proving that these estimators are asymptotically normal, after
suitable centering and scaling. (You do not have to derive the asymptotic variance.)
P∞  
2. Let Xt a stationary time series with h=−∞ γX (h) < ∞ and EXt = 0. Let λ ∈ (0, π) be
fixed, and let (λn ) be a sequence of natural frequencies with λn → λ. Define, for given k,
k
1 X  2π 
fˆn,k (λ) = In λn + j ,
2k + 1 n
j=−k

where In is the periodogram of the series (Xt ).

a. Give the definition of the periodogram In of (Xt ).
b. Calculate Efˆn,k (λ) and derive limn→∞ Efˆn,k (λ).
c. Formulate a theorem concerning the limit in distribution of the sequence fˆn,k (λ), and
derive an asymptotically correct confidence interval for fX (λ) based on fˆn,k (λ).

2
d. It can be shown that E fˆn,k (λ) − fX (λ) ≤ C
P 2


|h|>k γX (h) + k/n , for some constant
C. What does this say about a suitable value of k if it is known that fX is 4 times
continuously differentiable?

√ a sequence (Zt ) of i.i.d. standard normal variables, and numbers α > 0 and θ ∈
3. Consider
(0, 1/3 3). Let Xt = σt Zt , for σt2 defined by
∞
X
σt2 =α+α θj Zt−1
2 2
Zt−2 2
· · · Zt−j .
j=1

a. Prove that σt2 = α + θXt−12

.
b. Prove that the filtrations generated by (Xt ) and (Zt ) are the same.
c. Prove that E(Xt | Xt−1 , Xt−2 , . . .) = 0.
d. Prove that σt2 = E(Xt2 | Xt−1 , Xt−2 , . . .).
e. Prove that EXt2 = α/(1 − θ).
f. Prove that the series (Xt2 ) is an AR(1)-process, and derive its auto-covariance function.
2
g. Find a formula for E(σt+h | Xt , Xt−1 , . . .), for h > 0.

4. Let (Xt ) be the time series

Xt = A cos(πt/3) + B sin(πt/3) + Zt + 3Zt−1
for A, B, (Zt ) independent, with EA = PEB = 0, var A = var B = 1, and (Zt ) a white noise
process with var Zt = 1. Define Yt = j ψj Xt−j for ψ0 = 1, ψ1 = α, ψ2 = 1 and ψj = 0 for
j ∈ Z − {0, 1, 2}.
a. Prove that (Xt ) is stationary and derive its autocovariance function.
b. Find the spectral distribution of (Xt ).
c. For which value of α does (Yt ) possess a spectral density?
5. Let (Zt ) be an i.i.d. sequence of variables with (marginal) density z 7→ e−2|z| . For given θ ≥ 0
define a time series (Xt )t≥0 by X0 = 0 and


Xt = 1 + θ|Xt−1 | Zt , t ≥ 1.

a. Derive the conditional density of Xt given Xt−1 , Xt−2 , . . . , X0 .

b. Prove that the maximum likelihood estimator of θ based on observing X1 , . . . , Xn maxi-
mizes
n 
X 1 2|Xt | 
θ 7→ Mn (θ): = log − .
t=1
1 + θ|Xt−1 | 1 + θ|Xt−1 |


c. Show that Eθ0 Mn (θ) − Mn (θ0 ) ≤ 0 for every θ, θ0 , where Eθ0 means the expectation
with θ set equal to θ0 .
d. Comment, in maximally two lines, on the significance of this result.

e. Derive the derivative Ṁn (θ) of θ 7→ Mn (θ) and prove that the time series Ṁn (θ) n∈N is
a martingale relative to the filtration generated by (Xt ).
f. Comment, in maximally three lines, on the significance of this result.
g. Does the process (Xt ) exhibit volatility clustering? Does the volatility clustering increase
or decrease if θ is made bigger? Explain your answer.

6. Consider the equation φ(B)Xt = θ(B)Zt for a white noise process (Zt ) and polynomials φ and
θ that do not have common zeros. Prove: if this equation has a stationary solution (Xt ), then
φ has no roots on the unit circle.

7.
a. Give the definition of an m-dependent time series.
b. Give the definition of an α-mixing time series.
c. Prove that an m-dependent time series is α-mixing.
d. State and prove a central limit theorem for m-dependent time series.