Institute of Actuarial and Financial Mathematics WiSe 2023/24

Leibniz University Hannover

Prof. Dr. Stefan Weber, M.Sc. Sören Bettels

Quantitative Risk Management - Homework 2

Homework 2.1 - Properties of LSE 2 + 3p

Let β̂ be the least squares estimator of the classical linear model

y = Xβ + ε,

where X ∈ Rn×k+1 is the design matrix, β ∈ Rk+1 is the unknown parameter and ε ∈ Rn
are the centered errors with Cov(ε) = σ 2 I. Proof the following claims:

a) β̂ is an unbiased estimator for β.

b) Cov(β̂) = σ 2 (X T X)−1 when conditioned to X and Cov( d β̂) = σ̂ 2 (X T X)−1 is an

1
unbiased estimator for Var(β̂), where σ̂ 2 = n−k−1 ε̂T ε̂.

Homework 2.2 - Linearizable Regression Functions 2 + 2 + 2p

Consider the regression model
yi = f (zi , β, εi ),
for a suitable function f , i ∈ {1, . . . , n} and arbitrary error random variables εi .
Show that for the following functions f (zi , β, εi ) the regression model can be transformed
to a linear model and derive an estimator for β ∈ R2 from the least squares estimator of
the transformed model under the assumption that the after the transformation resulting
additive errors are centred and independent in i.

(a) f (zi , β, εi ) = β1 ziβ2 εi ,

(b) f (zi , β, εi ) = exp(−β1 zi1 exp(−β2 zi2 )εi ),

(c) f (zi , β, εi ) = β1 zi /(β2 + zi + β1 zi εi ).

Homework 2.3 - Empirical Properties of Financial Data 2 + 2 + 2p
Analyze the log returns of the Volkswagen stock from October 27th, 2015, until October
27th, 2020 in MATLAB:

a) Extract the stock price data from a source of your choice (for example: from Yahoo
Finance, stock VOW3.DE, closing value) and plot the log returns against time.

b) Fit a normal distribution in mean and variance to the log returns and sample a
time series as i.i.d. samples from the fitted normal distribution. Secondly compare
the log returns in (a) to the fitted normal distribution with a QQ-plot.

c) Calculate skewness and kurtosis of the log returns and perform a Jarque-Bera
test. Is a normal distribution in your opinion an appropriate choice to model the
Volkswagen log returns?

d) Extract BMW stock price data (BMW.DE) for the same time period and calculate
the corresponding log returns. Compare the BMW and Volkswagen log returns
time series and draw a pairwise scatter plot.

Homework 2.4 - Classical Linear Regression 1 + 2p

Consider the process St , t ∈ {1, . . . , 254} describing the daily closing prices of the german
market index DAX. We assume that the relative increments of St are independent in
time and stationary, such that
St+1 St+1 d Ss+1
|=

St and = ,
St St Ss
where s ̸= t, s, t ∈ {1, . . . , 253}.

a) Download the historical closing prices of the DAX from StudIP and plot the data
and returns SSt+1
t
against time.

b) Assume that St = β0 + β1 t + εt and calculate the least squares estimator for

(β0 , β1 )T to estimate the deterministic drift of log(St ) in the last year. Is this a
good approach to estimate the expected behavior of the DAX?

The solutions to the homework are to be handed in until the 6th of November at 12:15
p.m. via email to azuka.isaac@stud.uni-hannover.de