Suppose that the daily log return of a security follows the, Ask an Expert

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Suppose that the daily log return of a security follows the model

where {a_t} is a Gaussian white noise series with mean zero and variance 0.02.

What are the mean and variance of the return series r_t?

Compute the lag-1 and lag-2 autocorrelations of r_t. Assume that r₁₀₀ = -0.01, and r₉₉= 0.02.

Compute the 1-step and 2-step ahead forecasts of the return series at the forecast origin t = 100.

What are the associated standard deviations of the forecast errors?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91980587

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