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# VEE Time Series Readings and Notes

(as of 1/11/2010 -- applicable to Cryer/Chan text)

Index Module Section Pages Progress Notes Topic Equations to know

1 1 1.1 1-8 Examples of time series (Time Series plots)
2 1 1.2 8 Model building strategy
Stochastic processes; Means, variances,
3 2 2.2 11-12 2.2.1-2.2.7
and covariances
4 2 2.2 12-14 Random Walk 2.2.8-2.2.13
2.2.14-2.2.16 (esp.
5 2 2.2 14-16 Moving Average
2.2.15 derivation)
6 2 2.3 17-18 Stationarity 2.3.1-2.3.2
7 2 2.3 17 White Noise 2.2.3
8 3 2.3 27-28 Deterministic vs. Stochastic
Estimations of Constant Mean (tests
example on bottom of p 28, formulas on 29)
9 3 2.3 28-30 3.2.1-3.2.5 (not 3.2.6)
(doesn't give complex time series of test
equation 3.2.3)
10 4 3.3 30-33 Regression methods (not 34-36)
11 4 3.5 40-42 Interpreting regression output
Focus on q-q plots & sample 3.6.2 & exhibit 3.17 (p.
12 4 3.6 42-50 Residual Analysis
autocorrelation function 50)
13 5 4.1 55-56 General linear processes 4.1.6 (and derivation)
14 5 4.1 57-58 Moving Average processes 4.2.1-4.2.2
interpeting graphs & autocorrelation (know
15 5 4.1 58-62
table on p. 58)
4.2.3 (know derivation),
16 5 4.1 62-65 Moving Average processes
4.2.4
17 6 4.2 66-70 Autoregressive processes 4.3.1-4.3.6
18 6 4.2 70-71 General linear process for the AR(1) model
2nd order AR process (nothing after
19 6 4.2 71 Stationarity of an AR(1) process 4.3.7-4.3.8
"Although the equation…")
20 6 4.2 74 Exhibit 4.18 (what causes?) Variance of AR(2) model (not 4.3.19 or 4.3.20)
The psi coeffs of the AR(2) model (not last
21 6 4.2 75 4.3.21
3 eq or anything after "One can also…")
22 6 4.2 76-77 General AR process Yule-Walker equations
4.4.3-4.4.5 for
23 7 4.4 77-79 Mixed AR MA processes
ARMA(1,1) process

If |theta| < 1, the MA(1) model can be
inverted into an infinite order AR
24 7 4.5 79-81 Invertibility
model.
i.e. "MA(1) is invertible iff |theta| < 1"

(most act time series not stationary);
(for student project take 1st & 2nd
diffs, perhaps logs); (HW assignment Variable transformations; Stationarity
25 8 5.1 88-92 shows how loss cost trend is made through differencing (distinguish between 5.1.10 (and deriv)
stationary by logs & first diffs); (for sigma^2 in equation (know Exhibit 5.4)
s.p., ask whether the TS itself has
changed)

know how 1st or 2nd diffs makes
process stationary; for actuarial TS
like loss cost trends, inflation indices,
26 9 5.2 92-97 ARIMA process
stock prices, \$ values, first take logs,
then 1st diffs (easy to forget this but
important)
(only the phi(j) terms are in
denominator of exp for mu); (The
27 9 5.3 97-98 Constant terms in ARIMA models 5.3.16-5.3.17
constant theta(0) term is in numerator
of exp for mu)
28 9 5.4 98-100 101-102 not tested in TS but useful Other transformations 5.4.3 (p 99)
(know 3 bullet points at top of page; 3
29 10 6 109 Intro to model specification
steps for project & tested)
6.1.1 (p 109), 6.1.3,
Know last paragraph of section on Sample autocorrelation function (denom
30 10 6.1 109-112 6.1.5-6.1.6 (not 6.1.2,
page 112 has n terms, num has n-k terms) ==>
6.1.4, 6.1.7-6.1.8)
Partial autocorrelation function (not resp for
31 10 6.2 112-114 6.2.3-6.2.6
115-117)
Specification of simulated time series
32 11 6.3 117-124
(correlograms used in student project)

1 152-154 Moving average models (helpful illustrations. taking 2nd diff can be a problem.4-7.3 and ask what it means) 39 15 9.21-9.1 149-154 Method of Moments 7.3 197-198 9.3.1 9.3.6.3 196-197 Variance of AR(1) forecasts 9.6 (3 equiv 49 18 9.3. 152-154 Numerical examples 7.3 200-201 Non-stationary models None 9.useful for longer series).3. fitting.2.26-9.7 207-209 Forecast weights equations) 50 19 10.4 234-241 (project.4-9.4 124-128 Non-stationarity project consider taking logs before 1st diffs -. when feel the correlogram doesn’t approach 0 fast enough.3 198-200 grows w/o limit as forecast l/t until "To argue the validity…" 9. Residual Analysis (see exhibits 8.4 error variance is constant) 41 15 9.8- 36 12 7.5 241-245 (if exam probs. 51 19 10.8 42 15 9.3. not tested) 7.1.10 (give 37 13 7.27.2. Does not test the Dickey-Fuller Unit-Root test (but may be useful in project).6 (not 7.1 .16-9.22 processes) ("In contrast to stationary case.3 194-197 ARIMA forecasting 9.2 154-156 for NL regression (w/ numerical Least squares estimation same results as Y-W methods) for processes having equations) moving average component) (Standardized residuals not tested on 38 14 8.7.3.17 ARIMA forecasting (moving average 43 16 9.6 133-140 Specification of actual time series project) 35 12 7.8.applicable to Cryer/Chan text) Index Module Section Pages Progress Notes Topic Equations to know (know probs of over-differencing. but may give q-q plots. (for student 33 11 6.q) 9.3 8. (not responsible 7.2 191-193 Deterministic trends 9.30. 204) 47 17 9.5 (derive). most often wrong).1.designed to help student 55 21-24 None None (help for project only) project) .1.2.9-10.10) (know how to solve for params of AR process using LS).11 52 20 10.7.4.1 228-229 Seasonal ARIMA models 10.3.3.1.4 204-206 (no formulas. but no final exam info) Model specification.6 207 Updating ARIMA forecasts 9.1. 44 16 9.1 174-179 the final exam. 9.taking 2nd diffs can obscure true params).3 pp. 7.2. (justify why 2nd diff is warranted -.32 increases") 45 16 9.1.1.3. and checking 54 20 10.2-10.2 229-232 Multiplicative seasonal ARIMA models 10.2.9-7. VEE Time Series Readings and Notes (as of 1/11/2010 -.4 203-204 Prediction limits (p.3 233-234 Non-stationary seasonal ARIMA models 53 20 10. intuitive only) Forecasting seasonal ARIMA models None (No readings .2.2 and AR(1) process 46 17 9.2. helpful for project) Forecasting illustrations None 48 18 9.2.1 191 Minimum Mean squared error (note forecasts are unbiased and f/c 40 15 9. Var Random walk with drift (thru ARMA(p.1-7.5. (provides quant test for non- stationarity that may be useful in graphical analysis) (not tested but helpful for student 34 11 6.