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Fundamental Concepts: Enisumarminingsih, Ssi, MM

This document defines key concepts related to time series and stochastic processes. It discusses the mean and autocovariance functions used to characterize stochastic processes, and how these can be used to investigate covariance properties of different time series models. As an example, it also describes the random walk process and shows that it has a mean of 0 and autocovariance that depends only on the time difference.

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Barep Adji Widhi
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14 views

Fundamental Concepts: Enisumarminingsih, Ssi, MM

This document defines key concepts related to time series and stochastic processes. It discusses the mean and autocovariance functions used to characterize stochastic processes, and how these can be used to investigate covariance properties of different time series models. As an example, it also describes the random walk process and shows that it has a mean of 0 and autocovariance that depends only on the time difference.

Uploaded by

Barep Adji Widhi
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PPTX, PDF, TXT or read online on Scribd
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FUNDAMENTAL CONCEPTS

ENI SUMARMININGSIH, SSI, MM


Time Series and Stochastic Processes

 The sequence of random variables {Yt : t = 0, ±1, ±2,


±3,…} is called a stochastic process
Means, Variances, and Covariances

 For a stochastic process {Yt : t = 0, ±1, ±2, ±3,…}, the


mean function is defined by
μt = E(Yt) for t = 0, ±1, ±2, ... (2.2.1)
μt is just the expected value of the process at time t.
In general, μt can be different at each time point t
 The autocovariance function, γt,s, is defined as
γt, s = Cov (Yt ,Ys) for t, s = 0, ±1, ±2, ... (2.2.2)
where Cov(Yt, Ys) = E[(Yt − μt)(Ys − μs)]
= E(YtYs) − μt μs
 The autocorrelation function, ρt,s, is given by
ρt, s =Corr (Yt ,Ys) for t, s = 0, ±1, ±2, ...
Where
 The following important properties follow from
known results and our definitions
 To investigate the covariance properties of various
time series models, the following result will be used
repeatedly : If c1, c2,…, cm and d1, d2,…, dn are
constants and t1, t2,…, tm and s1, s2,…, sn are time
points, then
EXAMPLES

The Random Walk


 Let e1, e2,… be a sequence of independent, identically
distributed random variables each with zero mean
and variance . . The observed time series, {Yt : t = 1,
2,…}, is constructed as follows:
Alternatively, we can write

with “initial condition” Y1 = e1.


From Equation (2.2.8), we obtain the mean function
so that
Stationarity
A stochastic process {Yt} is said to be weakly (or
second-order) stationary if

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