Stat 520 CH 7 Slides
Stat 520 CH 7 Slides
ρ1 = φ1 + ρ1 φ2 and ρ2 = ρ1 φ1 + φ2
r1 = φ1 + r1 φ2 and r2 = r1 φ1 + φ2
r1 (1 − r2 ) r2 − r12
φ̂1 = and φ̂ 2 =
1 − r12 1 − r12
(1 − θφ̂)(φ̂ − θ)
r1 =
1 − 2θφ̂ + θ2
can be used to solve for an estimate of θ.
I This is a quadratic equation is θ, and so we again keep only
the invertible solution (if any exist) as our θ̂.
s2
σ̂e2 = .
1 + θ̂12 + θ̂22 + · · · + θ̂q2
1 − φ̂2
σ̂e2 = s 2.
1 − 2φ̂θ̂ + θ̂2
Yt − µ = φ(Yt−1 − µ) + et
Yt = et − θet−1
Yt = φYt−1 + et − θet−1 ,
we note that
et = Yt − φYt−1 + θet−1
and minimize Sc (φ, θ) = nt=2 et2 ; note that the sum starts at
P
t = 2 to avoid having to choose an “initial” value Y0 .
I With the general ARMA(p, q) model, the procedure is similar,
except that we assume ep = ep−1 = · · · = ep+1−q = 0, and we
estimate φ1 , . . . , φp , θ1 , . . . , θq .
I For large samples, when the parameter sets yield invertible
models, the initial values for ep , ep−1 , . . . , ep+1−q have little
effect on the final parameter estimates.
where
S(φ, µ) = nt=2 [(Yt − µ) − φ(Yt−1 − µ)]2 + (1 − φ2 )(Y1 − µ).
P
I For example, for the AR(1) model, var (φ̂) ≈ (1 − φ2 )/n, and
for the MA(1) model, var (θ̂) ≈ (1 − θ2 )/n.
I Clearly, the variance of the estimator decreases (i.e., the
precision improves) as n increases.
I For the AR(1) model, the variance of the estimator φ̂ will be
low when the true φ is near 1.
I For the MA(1) model, the variance of the estimator θ̂ will be
low when the true θ is near 1.
Yt = 0.57Yt−1 + et