MATH4425 HW3

March 2018

1 Q1
1.1
(1 − 0.9B)(Zt − 10) = at
˙ + at
Żt = 0.9Zt−1
where Żt = Zt − 10
Zt = 1 + 0.9Zt−1 + at
Z2 (1) = 1 + (0.9)(0.1) = 1.09 ; σ 2 (Z2 (1)) = σa2 = 2
Z2 (2) = 1 + (0.9)(1.09) = 1.981 ; σ 2 (Z2 (2)) = (1 + 0.92 )σa2 = 3.62
Z2 (3) = 1 + (0.9)(1.981) = 2.7829 ; σ 2 (Z2 (3)) = (1 + 0.92 + 0.94 )σa2 = 4.9322
Z2 (4) = 1+(0.9)(2.7829) = 3.5046 ; σ 2 (Z2 (4)) = (1+0.92 +0.94 +0.96 )σa2 = 5.995
1.2
Zt = 10 − 0.9at−1 + at
a(1) = Z(1)−10 = −8.8, a(2) = Z(2)−10+0.9at−1 = 0.1−10+0.9(−8.8) = −17.82
Z2 (1) = 10 − (0.9)(−17.82) = 26.038, σ 2 (Z2 (1)) = σa2 = 2
Z2 (2) = 10 ; σ 2 (Z2 (2)) = (1 + 0.92 )σa2 = 3.62
Z2 (3) = 10 ; σ 2 (Z2 (3)) = (1 + 0.92 )σa2 = 3.62
Z2 (4) = 10 ; σ 2 (Z2 (4)) = (1 + 0.92 )σa2 = 3.62
1.3
(1 − 0.5B)(Zt − 10) = at − 0.9at−1
Zt − 10 = 0.5(Zt−1 − 10) + at − 0.9at−1
Zt = 5 + 0.5Zt−1 + at − 0.9at−1
Zt+1 = 5 + 0.5Zt + at+1 − 0.9at

1
 Zt+2 = 5 + 0.5Zt+1 + at+2 − 0.9at+1
= 5 + 0.5(5 + 0.5Zt + at+1 − 0.9at ) + at+2 − 0.9at+1
= 7.5 + 0.25Zt − 0.4at+1 + at+2

Zt+3 = 5 + 0.5Zt+2 + at+3 − 0.9at+2

= 5 + 0.5(7.5 + 0.25Zt − 0.4at+1 + at+2 ) + at+3 − 0.9at+2
= 8.75 + 0.125Zt − 0.2at+1 − 0.4at+2 + at+3

Similarly:

Zt+4 = constant + 0.54 Zt − 0.1at+1 − 0.2at+2 − 0.4at+3 + 1

a1 = 1.2 − 5 = −3.8, a(2) = 0.1 − 5 − 0.5Z(1) − 0.9a1 = −2.08

Z2 (1) = 5 + 0.5(0.1) − 0.9(−2.08) = 6.922 ; σ 2 (Z2 (1)) = σa2 = 2
Z2 (2) = 5 + 0.5(6.922) = 8.461 ; σ 2 (Z2 (2)) = (0.42 + 1)σa2 = 2.32
Z2 (3) = 5 + 0.5(8.461) = 9.2305 ; σ 2 (Z2 (3)) = (0.22 + 0.42 + 1)σa2 = 2.4
Z2 (4) = 5+0.5(9.2305) = 9.615 ; σ 2 (Z2 (4)) = (0.12 +0.22 +0.42 +1)σa2 = 2.42

2 Q2
(1 − 1.4B − 0.48B 2 )(1 − B)Zt = at
(1 − 1.4B + 0.92B 2 + 0.48B 3 )Zt = at
Zt = 1.4Zt−1 − 0.92Zt−2 − 0.48Zt−3 + at
2a
Z(1) = 1.4(560) − 0.92(580) − 0.48(640) = −56.8
Z(2) = 1.4(−56.8) − 0.92(560) − 0.48(580) = −873.12
Z(3) = 1.4(−873.12) − 0.92(−56.8) − 0.48(560) = −1438.91
2b
variance = 58000, σ = 240.83
σ(Z(1)) = 240.83
confidence Interval=

−56.8 − (1.96)(240.83), −56.8 + (1.96)(240.83)] = [−528.83, 415.22]

2
 p
σ(Z(2)) = 240.83 1.42 + 1 = 414.34
confidence Interval=

[−873.12 − (1.96)(414.83), −873.12 + (1.96)(414.34)] = [−1686.19, −61.01]

p
σ(Z(3)) = 240.83 1.42 + 0.922 + 1 = 469.86
confidence Interval=

[−1438.91 − (1.96)(469.86), −1438.91 + (1.96)(469.86)] = [−2359.84, −517.98]

3 Q3
3a

(1 − 0.43B)(1 − B)Zt = (1 − 1.43B + 0.43B 2 )Zt = at

Zt = 1.43Zt−1 − 0.43Zt−2 + at
Zt+1 = 1.43Zt − 0.43Zt−1 + at+1
E[Zt+1 |Zt , Zt−1 ] = 1.43Zt − 0.43Zt−1 = 34.1
V ariance = σa2

Zt+2 = 1.43Zt+1 − 0.43Zt + at+2

= 1.43(1.43Zt − 0.43Zt−1 + at+1 ) − 0.43Zt + at+2
= 1.615Zt − 0.615Zt−1 + 1.43at+1 + at+2
E[Zt+2 |Zt , Zt−1 ] = 1.615Zt − 0.615Zt−1
= 34.2
V ariance = (1.432 + 1)σa2 = 3.045σa2

Zt+3 = 1.43Zt+2 − 0.43Zt+1 + at+3

= 1.43(1.615Zt − 0.615Zt−1 + 1.43at+1 + at+2 )−
0.43(1.43Zt − 0.43Zt−1 + at+1 ) + at+3
= 1.695Zt − 0.695Zt−1 + 1.615at+1 + 1.43at+2 + at+3
E[Zt+3 |Zt , Zt−1 ] = 1.695Zt − 0.695Zt−1
= 34.25
V ariance = (1.6152 + 1.432 + 1)σa2 = 5.65σa2

3
 Zt+4 = 1.43Zt+3 − 0.43Zt+2 + at+4
= 1.43(1.695Zt − 0.695Zt−1 + 1.615at+1 + 1.43at+2 + at+3 )−
0.43(1.615Zt − 0.615Zt−1 + 1.43at+1 + at+2 ) + at+4
= 1.729Zt − 0.729Zt−1 + 1.695at+1 + 1.615at+2 + 1.43at+3 + at+4
E[Zt+4 |Zt , Zt−1 ] = 1.729Zt − 0.729Zt−1
= 34.3
V ariance = (1.7292 + 1.6152 + 1.432 + 1)σa2 = 8.64σa2

Confidence Interval:

Z50 (1) : [34.1 − 1.645σa2 , 34.1 + 1.645σa2 ]

Z50 (2) : [34.2−(1.645)(3.045)σa2 , 34.2+(1.645)(3.045)σa2 ] = [34.2−5.01σa2 , 34.2+5.01σa2 ]

Z50 (3) : [34.25−(1.645)(5.65)σa2 , 34.25+(1.645)(5.65)σa2 ] = [34.2−9.3σa2 , 34.2+9.3σa2 ]
Z50 (4) : [34.3−(1.645)(8.64)σa2 , 34.3+(1.645)(8.64)σa2 ] = [34.2−14.22σa2 , 34.2+14.22σa2 ]

3b
Z51 (1) = 1.43(34.1) − 0.43(33.9) = 34.2
Z51 (2) = 1.43(34.2) − 0.43(34.1) = 34.3
Z51 (3) = 1.43(34.3) − 0.43(34.2) = 34.3
Z51 (4) = 1.43(34.3) − 0.43(34.3) = 34.3

Variance of estimation after l period will be the same with,mean will be differ-
ence,hence the confidence interval:

Z51 (1) : [34.2 − 1.645σa2 , 34.2 + 1.645σa2 ]

Z51 (2) : [34.3−(1.645)(3.045)σa2 , 34.3+(1.645)(3.045)σa2 ] = [34.3−5.01σa2 , 34.3+5.01σa2 ]

Z51 (3) : [34.3−(1.645)(5.65)σa2 , 34.3+(1.645)(5.65)σa2 ] = [34.3−9.3σa2 , 34.3+9.3σa2 ]
Z51 (4) : [34.3−(1.645)(8.64)σa2 , 34.3+(1.645)(8.64)σa2 ] = [34.3−14.22σa2 , 34.3+14.22σa2 ]