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#1
04-09-2012, 06:59 AM
 Shouxiaozi Member CAS Join Date: Oct 2011 Posts: 54
Venter Financial Question

I am not sure whether I did the right derivation -

my question is regarding the variance formula for AR(1) variance. In Venter paper, it is s^2*[1-b^(2t+1)]/(1-b^2); but I can only get s^2*[1-b^(2t)]/(1-b^2). Can anybody give it a try to either disprove or approve me?

Thanks.
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Last edited by Shouxiaozi; 04-09-2012 at 08:41 AM..
#2
04-09-2012, 08:55 AM
 Colymbosathon ecplecticos Member Join Date: Dec 2003 Posts: 5,032

The variance of your second term is not zero.
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#3
04-09-2012, 10:22 AM
 Shouxiaozi Member CAS Join Date: Oct 2011 Posts: 54

I would think that r_i is known, so its variance is 0.

If I use the notation from Venter Financial r_t instead of r_i+t, then the second item becomes b^t * r0. Obviously here r0 is a known amount, and its variance must be zero.

Correct me if I am wrong though.
#4
04-09-2012, 11:01 AM
 Colymbosathon ecplecticos Member Join Date: Dec 2003 Posts: 5,032

Quote:
 Originally Posted by Shouxiaozi I would think that r_i is known, so its variance is 0.
True, it is known after time i, but imagine doing this at time = 0.
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