This is Econometrics class. I uploaded it to the statistics and probability cate

Question

This is Econometrics class. I uploaded it to the statistics and probability category, but nobody answered. So I uploaded this one one the Other Math category.

3. [20 pts The log return rt of a certain stock follows the following process: + at, at-Oye, Et ~ t6.5 1 + 0.9 0.016 + 0.1 0.03 + 0.05 = where t denotes standardized Student-t distribution with v degrees of freedom. Suppose further that r100 = 0.02 and 100-0.4. (a) [10 pts] Calculate the "one-step-ahead" mean and volatility predictions of rt at the first origin T = 100. (b) [10 pts] Calculate the "two-step-ahead" predictions of the mean and volatility of rt at the fore- cast origin T 100

Explanation / Answer

1. It is a Arima model equation and the one step mean will be 0.45

2. Two step mean will be 0.432

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