CH6 + CH8

Check the plot and sample ACF for seasonality, stationary in the mean/variance
*Buys-Ballot table: row total stochastic dif. column total seasonal dif.*
1. Variance-stabilizing transformation use that has lowest MSE

2. If ACF decays very slowly use normal differencing (1 B)d

3. If ACF consists of large spike at every use seasonal differencing (1 Bs )D
Predict the model from sample ACF/PACF

2 )
1. AR PACF MA ACF by = ; = (1 + 212 + + 21

2. Seasonal AR/MA large spike at lag "s" to "s + P/Q"

3. Check deterministic trend term 0 by = ; =

*If no differencing is needed, the model should include mean ( = )*

ARIMA(, , ) (, , ) : () ( )(1 ) (1 ) = ()Q ( )
4. Check residual ACF: large spike add appropriate AR or MA
2 (
5. < 0.05
2) not significant judged adequate for the series
CH5 (maybe in the exam) (use in CH8 p.175-177,181) (adequate model only)
+ = , () = ; () = + when 0
(+ | , 1 , ) = + when 0, 0.
1

() = = , [ ()] = ( ()) =

=0

2
=0

(1 )100% forecast limit for + : () 1 + 2

2

=1

() = + () = + , , , lower better
=0

updated forecast for ++1 : +1 () =, ( + 1) + 1 [+1 ()]

CH7
1. Estimate model parameters from sample ACF by the system of Yule-Walker equations
1 1
0
1
1 1 1
1
2 2
1
0
2

2 =
[ 2 ]

0 ] [ ] [ ] [1 2 0 ]
2
2
2
0 = 1 1 + + + = 0 (1 1 1 ), 0 = = sample variance of
0
1
2
1
[ ]=

[ 1

1
0

2. Calculate conditional or unconditional sum of squares (see examples and p.138-143)

*If no differencing is needed, the model should include mean ( = )*

NuttC

CH7
ARMA(, ): = 1 1 + + + 1 1
where = and { } are i. i. d. (0, 2 ) white noise. Rewriting this model as
= 1 1 + + + 1 1 (forward form)
= 1 +1 + + + + 1 +1 + (backward form)

Let = (1 , , ) , = (1 , , 0 ) , = (1 , , 0 )
Based on the assumptions that { } is stationary, we can replace the unknown by
the sample mean and the unknown by its expected value of 0. We also assume
= 1 = = +1 = 0 and calculate for + 1

The conditional sum of squares function: (, , ) = 2 (, , |)

=+1

The unconditional sum of squares function: (, , ) = [( |, , , )]2

=

where is chosen so that |( |, , , ) (1|, , , )| < for ( + 1)

which implies that ( |, , , ) , hence, ( |) is negligible for ( + 1)
for 0 are unknown future random shocks, hence, ( |) = 0 for 0
(, , ) (, , )
2 =
=
; d. f. = ( ) ( + + 1), =
d. f.

CH9
Frequency domain analysis: fluctuation in terms of sinusoidal behavior at various freq.
= 0,
and are orthogonal if () () {
; is complex conjugate of
0, =

+ 1 , even
2
2

2
2
2/
{sin ( ) , cos ( ) : = 0,1, , 2} {
: { 1
}
1
2 2 , odd

= 0,
1( 2 )
2
2/ = 2/ [
2/ 2/ {
]
,

=
1

1
= , =

= [ cos + sin ] , = 1,2, , "Fourier series of "

=0

, = 0,1, , "Fourier Freq"

= cos , = 0, and = if is even,

2
=1

=
=

2
1
cos , = 1,2, ,

(0 = constant avr value)

{
=1

2
1
= sin , = 1,2, ,
(0 = 0)

2
=1

+ 1 , even
1
2
2

=
{ 1
, =
1

, odd

=1
2
2

+
/2 = /2 , =
, = =
2
2
NuttC

CH9

+ 1 , even
2
2
Power = | |2 { 1
1

, odd

2
2
1
Power spectrum: 0 = 02 = 02 , = 2| |2 = (2 + 2 )
2

= () , = 0, 1, , () =

1
, "Fourier Transform Pair"
2
=

| |2 = 2 |()|2 "Parsevals relation" () = 2|()|2 "energy spectrum"

| | < is absolutely summable FTP valid for infinite duration

=

spectrum () Plot against +/, symmetric? , dominated by highlow freq.

() =

() =

, =

/2

/2

) 0

/2

|()| = | |2 , 0 =

/2

1
1
() , () = () , |()|2 =
|()|2
2
2

CH10
Let be the real valued stationary process with absolutely summable (AS) k

1
1
() =
0 + cos , , = () "Fourier Transform Pair"
2

=1

sin () = sin = , cos () = cos = , =

|()| = () = ( + 2) = (), Var( ) = 0 = () spectrum peak at 0

(); (): spectral distribution function () () + ()

() = (), For , () = () "abs cont component", else () = ()

=1

1
2 4 , 0
2
)
= sin( + , = cos = cos ; = { 2
2
2 , = 0
=1

()
1
1
() =
+ cos , , = ()
0
2

() =

=1

= (), = (); () = [|()|2 ] = () ()

nondeterministic , () = (), ()() = () = (), = ()

() =

() (1 )
1
()

()
=
(

1 ()
),

() (1 )
2

2 ( )
stationary when roots of () = 0 lie outside of unit circle AS k () =
|
|
2 ( )
2

invertible when roots of () = 0 lie outside of unit circle

1 ()

2 ( )
= 2|
|
( )

The spectrum is dominated by high frequency = the series is negatively autocorrelated (vice versa)
= (fourier series with n = s) + spectrum contains decreasing peaks at 2k/s

1
2
() =
() , = () , () = |( )| () "filter function"
2

NuttC