hw3 - ORIE 4630 D. Ruppert Homework #3 due Friday, Sep 17,...

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

View Full Document Right Arrow Icon
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)
Background image of page 1

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

View Full DocumentRight Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

hw3 - ORIE 4630 D. Ruppert Homework #3 due Friday, Sep 17,...

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

View Full Document Right Arrow Icon
Ask a homework question - tutors are online