TIME SERIES

Solutions to Exercise Sheet 3

1. To derive the autocovariance function of the MA(2) process, we calculate cov(Xt , Xt+ )
for all t, = 0, 1, 2, . . .. We may write
cov(Xt , Xt+ ) = cov(Zt + 1 Zt1 + 2 Zt2 , Zt+ + 1 Zt+ 1 + 2 Zt+ 2 )
= E{(Zt + 1 Zt1 + 2 Zt2 )(Zt+ + 1 Zt+ 1 + 2 Zt+ 2 )},
since E(Zt ) = 0 for all t. This gives
cov(Xt , Xt+ ) = E(Zt Zt+ + 1 Zt Zt+ 1 + 2 Zt Zt+ 2 + 1 Zt1 Zt+
+12 Zt1 Zt+ 1 + 1 2 Zt1 Zt+ 2 + 2 Zt2 Zt+
+1 2 Zt2 Zt+ 1 + 22 Zt2 Zt+ 2 ).
Thus, as the Zt are uncorrelated random variables with var(Zt ) = 2 , we obtain

( ) =

(1 + 12 + 22 ) 2
1 (1 + 2 ) 2
2 2
0

if
if
if
if

= 0,
= 1,
= 2,
| | > 2.

Dividing each of these expressions by (0), we obtain the autocorrelation function

( ) =

2)
1 (1+
2
2
1+1 +2

1+12 +22

if
if
if
if

= 0,
= 1,
= 2,
| | > 2.

2. First note that E(Zt ) = 0 for all t, and so E(Xt ) = 0 for all t. Thus, the autocovariance
is

q
q
X
X
1
cov(Xt , Xt+ ) =
E Ztk
Zt+ j .
(q + 1)2
j=0
k=0
For = 0, we obtain
2
1
2
(q
+
1)
=
,
(q + 1)2
q+1
since the Zt are uncorrelated and there are exactly q + 1 products Zj Zj , each having
expectation E(Zj2 ) = 2 . Similarly, for = 1, 2, . . . , q, there are q + 1 | | such
products and none for | | > q. Hence, we have
(0) =

( ) =

1
(q + 1 | |) 2
(q + 1)2

for = 1, 2, . . . , q. It follows that

( (q+1| |)2
q+1

( ) =

(q+1)2

q+1| |
q+1

0
1

if = 0, 1, 2, ..., q,
if | | > q.

3. Using Theorem 3.2 in Section 3.3 of the lecture notes, we can write
(1)
(1) =
=
(0)

Pq1

j j+1
,
2
j=0 j

j=0

Pq

where 0 = 1. When q = 1, we have

(1) =

1
.
1 + 12

By treating (1) as a function of 1 , we know that its extrema are at 1 = 1. Thus,

it follows that
 

1
.
|(1)| = cos
2
3
When q = 2, we have
1 (1 + 2 )
(1) =
.
1 + 12 + 22
By treating (1) this time as a function of 1 and 2 , we can again calculate its extrema.
Let
1 (1 + 2 )
f (1 , 2 ) =
.
1 + 12 + 22
Then

(1 + 2 )(1 12 + 22 )
f
=
1
(1 + 12 + 22 )2

and

1 (1 22 + 12 22 )
f
=
.
2
(1 + 12 + 22 )2

The derivatives are

equal to zero at (1 , 2 ) = ( 2,
1), (0, 1) and ( 2, 1). Since
f ( 2, 1) = 1/ 2, f (0, 1) = 0 and f ( 2, 1) = 1/ 2, it follows that
1

|(1)| = cos
.
4
2