# hw3 - ORIE 4630 D Ruppert Homework#3 due Friday 1 Suppose...

This preview shows pages 1–2. Sign up to view the full content.

ORIE 4630 — D. Ruppert Homework #3 — due Friday, Sep 17, 2010 1. Suppose that the log returns r 1 ,r 2 ,r 3 ,... are iid N (0 . 001 , 0 . 06). (We use the notation that the second parameter in a normal distribution, here 0.06, is the variance. This is common notation, but not universal. For example, in R functions such as pnorm , the second parameter is the standard deviation.) Let r 4 (3) = r 2 + r 3 + r 4 and r 4 (4) = r 1 + r 2 + r 3 + r 4 be the 3-period and 4-period log returns at time 4. (a) What is the covariance between r 4 (3) and r 4 (4)? (Hint: If you are having trouble getting started, review the material in Section 2.17.1.) (b) What is the conditional distribution of r 4 (4) given that r 4 (3) = 0 . 1? 2. In this problem you will ﬁt a t -distribution by maximum likelihood to the daily log- returns for Siemens. The data are in the data set siemens that is part of the evir package. Run the following code: library(evir) library(fGarch) data(siemens) start_siemens = c(mean(siemens),sd(siemens),4)

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
This is the end of the preview. Sign up to access the rest of the document.

## This note was uploaded on 09/20/2011 for the course ORIE 4630 at Cornell.

### Page1 / 2

hw3 - ORIE 4630 D Ruppert Homework#3 due Friday 1 Suppose...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document
Ask a homework question - tutors are online