Lecture Notes

Empirical Methods in Financial

Engineering

 
  


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8

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50

0
0.02

45
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40

50

100

150

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0.06

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50

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0.06

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0.90

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0.02
0
0.02
0.04
0.06

50

100

150

200

250

50

100

150

200

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0.75
0.50
0.25
0.10
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150

200

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Geometric Random Walk

65

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75

60

70
65

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60
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50

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100

150

200

45

250

Geometric Random Walk

50

100

150

200

250

GE, daily 12/17/99 to 12/15/00

55

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2.5

Price

Log Price

Random Walk

400

800

1000

200

Random Walk

400

600

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1000

Geometric Random Walk

2.5

12
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Log Price

8
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2/2/01 10:45:25 AM
Welcome to Minitab, press F1 for help.
Retrieving worksheet from file: C:\COURSES\OR473\MINITAB\GE_DAILY.MTW
# Worksheet was saved on Wed Jan 10 2001
Results for: GE_DAILY.MTW
ARIMA Model: logR
ARIMA model for logR
Estimates at each iteration
Iteration
SSE
Parameters
0
2.11832
0.100
0.090
1
0.12912
0.228
0.015
2
0.07377
0.233
0.001
3
0.07360
0.230
0.000
4
0.07360
0.230
-0.000
5
0.07360
0.230
-0.000
Relative change in each estimate less than
Final Estimates of Parameters
Type
Coef
SE Coef
AR
1
0.2299
0.0621
Constant -0.000031
0.001081
Mean
-0.000040
0.001403

T
3.70
-0.03

0.0010

P
0.000
0.977

Number of observations: 252

Residuals:
SS = 0.0735911 (backforecasts excluded)
MS = 0.0002944 DF = 250
Modified Box-Pierce (Ljung-Box) Chi-Square statistic
Lag
12
24
36
48
Chi-Square
23.0
33.6
47.1
78.6
DF
10
22
34
46
P-Value
0.011
0.054
0.066
0.002

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options linesize = 72 ;
comment Restrict the linesize to 72 characters ;
data ge ; comment Start the data step ;
infile c:\courses\or473\data\ge.dat ;
comment Specify the input data set ;
input close ;
comment Create a new variable ;
D_p = dif(close);
comment Take first differences ;
logP = log(close) ;
logR = dif(logP) ;
comment logR = log returns ;
run ;
title GE - Daily prices, Dec 17, 1999 to Dec 15, 2000 ;
title2 AR(1) ;
proc autoreg ;
model logR =/nlag = 1 ;
run ;

 5"5Cld&5"32>2

C% "=&C&&
GE - Daily prices, Dec 17, 1999 to Dec 15, 2000
1
AR(1)
10:32 Friday, February 2, 2001
The AUTOREG Procedure
Dependent Variable

logR

Ordinary Least Squares Estimates

SSE
MSE
SBC
Regress R-Square
Durbin-Watson

0.07762133
0.0003092
-1316.8318
0.0000
1.5299

DFE
Root MSE
AIC
Total R-Square

251
0.01759
-1320.3612
0.0000

Variable

DF

Estimate

Standard
Error

t Value

Approx
Pr > |t|

Intercept

-0.000011

0.001108

-0.01

0.9917

Estimates of Autocorrelations
Lag

Covariance

Correlation

0
1

0.000308
0.000069

1.000000
0.225457

Estimates of Autocorrelations
Lag

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1

0
1

|
|

|********************|
|*****
|

Preliminary MSE

0.000292

Estimates of Autoregressive Parameters

Lag

Coefficient

Standard
Error

t Value

1
-0.225457
0.061617
-3.66
GE - Daily prices, Dec 17, 1999 to Dec 15, 2000
2
AR(1)
10:32 Friday, February 2, 2001
The AUTOREG Procedure
Yule-Walker Estimates

E"/2aY=+22`[22&&N&l
SSE
MSE
SBC
Regress R-Square
Durbin-Watson

0.07359998
0.0002944
-1324.6559
0.0000
1.9326

DFE
Root MSE
AIC
Total R-Square

250
0.01716
-1331.7148
0.0518

Variable

DF

Estimate

Standard
Error

t Value

Approx
Pr > |t|

Intercept

-0.000040

0.001394

-0.03

0.9773

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 5`[2
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options linesize = 72 ;
comment Restrict the linesize to 72 characters ;
data ge ; comment Start the data step ;
infile c:\courses\or473\data\ge_quart.dat ;
comment Specify the input data set ;
input close ;
D_p = dif(close);
comment Take first differences ;
logP = log(close) ;
logR = dif(logP) ;
comment logR = log returns ;
run ;
title GE - Quarterly closing prices, Dec 1900 to Dec 2000 ;
title2 AR(6) with backstepping ;
proc autoreg ;
model logR =/nlag = 6 backstep ;
run ;

l

l

E"/2aY=+22`[22&&N&l
QC%>"m=&C&&
GE - Quarterly closing prices, Dec 1900 to Dec 2000
1
AR(6) with backstepping
23:32 Tuesday, January 30, 2001
The AUTOREG Procedure
Dependent Variable

logR

Ordinary Least Squares Estimates

SSE
MSE
SBC
Regress R-Square
Durbin-Watson

0.15125546
0.00398
-102.20076
0.0000
2.0710

DFE
Root MSE
AIC
Total R-Square

38
0.06309
-103.86432
0.0000

Variable

DF

Estimate

Standard
Error

t Value

Approx
Pr > |t|

Intercept

0.0627

0.0101

6.21

<.0001

Estimates of Autocorrelations
Lag

Covariance

Correlation

0
1
2
3
4
5
6

0.00388
-0.00014
-0.00023
0.00152
-0.00014
-0.00075
0.000337

1.000000
-0.036627
-0.059114
0.392878
-0.035792
-0.193269
0.086919

Estimates of Autocorrelations
Lag
0
1
2
3
4
5
6

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
|
|
|
|
|
|
|

|********************|
*|
|
*|
|
|********
|
*|
|
****|
|
|**
|

GE - Quarterly closing prices, Dec 1900 to Dec 2000

2
AR(6) with backstepping
23:32 Tuesday, January 30, 2001
The AUTOREG Procedure

 5`[2
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Backward Elimination of
Autoregressive Terms

Lag

Estimate

t Value

Pr > |t|

4
2
1
6
5

0.020648
-0.023292
0.035577
0.082465
0.170641

0.12
-0.14
0.23
0.50
1.13

0.9058
0.8921
0.8226
0.6215
0.2655

Preliminary MSE

0.00328

Estimates of Autoregressive Parameters

Lag

Coefficient

Standard
Error

t Value

-0.392878

0.151180

-2.60

Expected
Autocorrelations
Lag

Autocorr

0
1
2
3

1.0000
0.0000
0.0000
0.3929

Yule-Walker Estimates
SSE
MSE
SBC
Regress R-Square
Durbin-Watson

0.12476731
0.00337
-105.5425
0.0000
1.9820

DFE
Root MSE
AIC
Total R-Square

37
0.05807
-108.86962
0.1751

GE - Quarterly closing prices, Dec 1900 to Dec 2000

3
AR(6) with backstepping
23:32 Tuesday, January 30, 2001
The AUTOREG Procedure

Variable

DF

Estimate

Standard
Error

t Value

Approx
Pr > |t|

Intercept

0.0632

0.0146

4.33

0.0001

Expected

l

E"/2aY=+22`[22&&N&l
Autocorrelations

'&

Lag

Autocorr

0
1
2
3

1.0000
0.0000
0.0000
0.3929

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options linesize = 72 ;
data cree ;
infile U:\courses\473\data\cree_daily.dat ;
input month day year volume high low close ;
logP = log(close) ;
logR = dif(logP) ;
run ;
title Cree daily log returns ;
title2 ARMA(1,1) ;
proc arima ;
identify var=logR ;
estimate p=1 q=1 ;
run ;

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=&vNQ%&&
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=5%C5%=l5%NEKEd=CQ=r;5lc;CK K2Q%=CQ+=Ylcl
%
pY%=%lF%&N%C2CQQ%dC=(QE
Cree daily log returns
1
ARMA(1,1) 15:18 Friday, February 2, 2001
The ARIMA Procedure

 5`[2
>22[/

l

Name of Variable = logR

Mean of Working Series
Standard Deviation
Number of Observations

-0.00071
0.067473
252

Autocorrelations
Lag Covariance Correlation -1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

0.0045526
0.00031398
-0.0000160
-5.5958E-6
-0.0002213
0.00002748
-0.0000779
-0.0000207
-0.0003281
0.00015664
0.00057077
0.00023632
-0.0003475
-0.0001348
-0.0005590
0.00023425
-0.0001021
-0.0000582
-0.0007147
0.00006314
-0.0000466
-0.0001681
-0.0001439
-0.0002135
0.00007502

1.00000
0.06897
-.00351
-.00123
-.04862
0.00604
-.01712
-.00454
-.07207
0.03441
0.12537
0.05191
-.07633
-.02961
-.12278
0.05145
-.02242
-.01278
-.15699
0.01387
-.01024
-.03692
-.03161
-.04690
0.01648

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|********************|
. |* .
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. | .
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. | .
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. *| .
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. | .
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. | .
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. | .
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. *| .
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. |* .
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. |***
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. |* .
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.**| .
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. *| .
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.**| .
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. |* .
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. | .
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. | .
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***| .
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. | .
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. | .
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. *| .
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. *| .
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. *| .
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. | .
|

"." marks two standard errors

Cree daily log returns

2
ARMA(1,1) 15:18 Friday, February 2, 2001
The ARIMA Procedure
Inverse Autocorrelations
Lag

Correlation

1
2
3
4
5
6

-0.11452
0.06356
-0.08905
0.12788
-0.04576
0.07209

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
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.**| .
. |* .
.**| .
. |***
. *| .
. |* .

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E"/2aY=+22`[22&&N&l
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

-0.06322
0.09828
-0.04639
-0.05006
-0.09283
0.10049
-0.02141
0.15284
-0.09318
0.05864
-0.02983
0.16300
-0.05602
0.05126
0.01713
0.04942
0.00197
-0.01745

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. *| .
. |**.
. *| .
. *| .
.**| .
. |**.
. | .
. |***
.**| .
. |* .
. *| .
. |***
. *| .
. |* .
. | .
. |* .
. | .
. | .

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Partial Autocorrelations
Lag

Correlation

1
2
3
4
5
6
7
8
9
10
11
12
13
14

0.06897
-0.00830
-0.00041
-0.04877
0.01287
-0.01916
-0.00183
-0.07486
0.04628
0.11841
0.03697
-0.09207
-0.01457
-0.11485

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
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. |* .
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. | .
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. | .
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. *| .
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. | .
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. | .
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. | .
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. *| .
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. |* .
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. |**.
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. |* .
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.**| .
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.**| .
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Cree daily log returns
3
ARMA(1,1) 15:18 Friday, February 2, 2001
The ARIMA Procedure
Partial Autocorrelations

Lag

Correlation

15
16
17
18
19
20
21
22
23

0.07540
-0.04385
0.00180
-0.16594
0.05041
-0.06240
-0.02732
-0.05643
0.00111

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
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. |**.
. *| .
. | .
***| .
. |* .
. *| .
. *| .
. *| .
. | .

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 5`[2
>22[/
24

0.01957

Autocorrelation Check for White Noise

To
Lag

ChiSquare

DF

Pr >
ChiSq -------------Autocorrelations------------

6
12
18
24

1.91
10.02
21.95
23.37

6
12
18
24

0.9276 0.069 -0.004 -0.001 -0.049 0.006 -0.017

0.6143 -0.005 -0.072 0.034 0.125 0.052 -0.076
0.2344 -0.030 -0.123 0.051 -0.022 -0.013 -0.157
0.4978 0.014 -0.010 -0.037 -0.032 -0.047 0.016

Conditional Least Squares Estimation

Estimate

Standard
Error

t Value

Approx
Pr > |t|

Lag

-0.0006814
-0.18767
-0.11768

0.0045317
0.88710
0.89670

-0.15
-0.21
-0.13

0.8806
0.8326
0.8957

0
1
1

Parameter
MU
MA1,1
AR1,1

Constant Estimate
-0.00076
Variance Estimate
0.004585
Std Error Estimate
0.067712
AIC
-638.889
SBC
-628.301
Number of Residuals
252
* AIC and SBC do not include log determinant.
Cree daily log returns
4
ARMA(1,1) 15:18 Friday, February 2, 2001
The ARIMA Procedure
Correlations of Parameter Estimates
Parameter
MU
MA1,1
AR1,1

MU

MA1,1

AR1,1

1.000
0.005
0.006

0.005
1.000
0.998

0.006
0.998
1.000

Autocorrelation Check of Residuals

To
Lag

ChiSquare

DF

6
12
18
24
30
36

0.75
8.54
21.12
22.48
32.65
38.16

4
10
16
22
28
34

Pr >
ChiSq -------------Autocorrelations-----------0.9444 0.000 0.004 0.001
0.5761 0.003 -0.075 0.032
0.1741 -0.014 -0.127 0.062
0.4314 0.025 -0.011 -0.035
0.2490 0.054 0.127 0.102
0.2858 -0.055 -0.038 -0.026

-0.049 0.010 -0.019

0.118 0.050 -0.079
-0.029 0.001 -0.159
-0.026 -0.045 0.016
-0.023 -0.029 0.070
-0.079 0.021 0.083

E"/2aY=+22`[22&&N&l
42
48

47.23
49.15

40 0.2009 -0.061 -0.092 -0.004 -0.028 -0.118 -0.055

46 0.3480 -0.032 -0.011 -0.004 0.027 0.054 -0.036

Model for variable logR

Estimated Mean

-0.00068

Autoregressive Factors
Factor 1:

1 + 0.11768 B**(1)

Moving Average Factors

Factor 1:

1 + 0.18767 B**(1)

 5`[2
>22[/

C

CREE, daily 12/17/99 to 12/15/00

100

0.3

90
0.2
80
Return

price

70
60

0.1
0

50
0.1
40
30

50

100

150

200

0.2

250

50

100

150

200

250

Normal plot of log returns

15

0.999
0.997
0.99
0.98
0.95
0.90

10

Probability

log return

5
0
5
10
15

50

100

150

200

250

50

100

150

200

250

0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.001

10

0
log return

10

12
10

Volatility

8
6
4
2
0

FF&
 %3'*'i,/+-0-Gq%3'J?A.K%*6K)JLZ[C'>]%*)J?B0-!N?^+-)?AC'D%*+-OP'*)JL9Z[C'Q)*'*O!6K,/6K,W?AC+-%*,

/%3'S?AC'V6K'J?%3'J?A.K%*6K)V/6K,q?AC'm0-!3H%3'J?A.K%*6K)JLKZ[C'#2!.K%J?ACE0-!N?N+-)r/Q6K!%*4/0"%3!J/+-0-+`?AG0-!N?
!$#?AC'V0-!3H%('J?A.%*6K)JLZ[C'>\6/F0 0-!N?+-)!$#@?AC'V/ )*!0-.V?A'm0-!3H&%3'J?A.K%*6K) G^?AC'*%3'1+-)V/Q)*O/N?<?A'*% 0-!N?
)*4!!N?AC?A!SC'*'0 )*C!_o_9C'J?AC'*%?AC'1U!0-/N?A+-0-+`?AG+-)VOP!6K)J?A/6V?<L

u vQ

EIH"/KJMLONY=+KJ2`[22&PL&N&l
~|UTEV%WN UX~59!WYV [Z\]WNU!

RS

2dQ&NQd -v%&=C%Qd&Q2NC2C% =5QC&vd&=%Cw%=Q

%`=&;Q-&vNQ&C-C%=QC&v%dF.CC-&C=N=vQC=
QFQYFC%Q"d=F  NCdC[%=F
Cd3&%dN/C-QvQ2"dF
&=lCdC/&C=N=vQC=d%=C%  -&F
2d[C-QvQYC%1  -&-=dCddCQ/vCQ3=C%QQC-=%C
"">&vY=C=
QNQ-=l&dC=FQ=&v-l>2d 2CN=-
C= r  -&lKY=^ A&%2N%$&=ClCS ErO!6K!4b'J?A%*+-O_{!,'*0-)/6,
ErO!6!4+-O]K!%3'*O/)J?A)2d5Cm&=CCQ+F&@
A =2d5&ld2CQdNQ
==Yl=-QdFCC=dvWd=&%"-=2QCC%&l%2CQ
Q%NQf
3 month Tbills

Differences
4
2

15

1st difference

interest rate

20

10
5
0
0

0
2
4

200
400
month since Jan 1950

6
0

600

SACF

200
400
month since Jan 1950

600

SACF of differences

0.4

autocorr.

autocorr.

0.2
0.5

0
0.2

0.5
0

20

40
lag

60

0.4
0

20

40

60

lag

FF&9
AKZ+-4b')*'*%*+-'*)`0-!N?!$#a4!6V?ACZ%('*/)*.%*Gb+-0-0%*/N?A'*)c0-!N? !$#>]%*)J? ,+ #-#2'*%3'*6KO'*)
/6K,)*/4$0-'1/.V?A!O!%*%3'*0-/N?A+-!6#2.K6KOd?A+-!6!$#[>\%*)J?,+ #-#2'*%3'*6KO'*)JL?_!6V?AC0-GU/0-.K'*) #2%(!4ed/6Of
.K/%*G; gChCi.K6V?A+-?0 _{/%(OPC; gCgXL

5 "&Et=J2KlCia/mJKH"on5Jprq2EIJH"/2

LON jON KkH

v5CvY&CC%Y;5Cl0-=2QC"lQCd>""&=

F=CCCQ-Q%Vl2Q%CCFs@>Cl&k&QN&QwC%dC% -=2Q>d=&
=&dC;Cd&vECQQ%NQ=CdFvdNf5CddCQFvCF
options linesize = 72 ;
data rate1 ;
infile c:\courses\or473\data\fygn.dat ;
input date $ z;
title Three month treasury bills ;
title2 ARIMA model - to first differences ;
proc arima ;
identify var=z(1) ;
estimate p=10 plot;
run ;

C% "=&C&&
Three month treasury bills
1
ARIMA model - to first differences
14:41 Saturday, February 3, 2001
The ARIMA Procedure
Name of Variable = z
Period(s) of Differencing
Mean of Working Series
Standard Deviation
Number of Observations
Observation(s) eliminated by differencing

1
0.006986
0.494103
554
1

Autocorrelations
Lag Covariance Correlation -1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
0
0.244138
1
0.067690
2 -0.026212
3 -0.022360
4 -0.0091143
5
0.011399
6 -0.045339
7 -0.047987
8
0.022734
9
0.047441
10
0.014282
11 -0.0017082
12 -0.022600

1.00000
0.27726
-.10736
-.09159
-.03733
0.04669
-.18571
-.19656
0.09312
0.19432
0.05850
-.00700
-.09257

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|********************|
. |******
|
**| .
|
**| .
|
.*| .
|
. |*.
|
****| .
|
****| .
|
. |**
|
. |****
|
. |*.
|
. | .
|
**| .
|


13
14
15
16
17
18
19
20
21
22
23
24

EIH"/KJMLONY=+KJ2`[22&PL&N&l
0.0087638
0.038426
-0.024885
0.0012018
0.020048
0.019043
-0.0081609
-0.056547
-0.038945
-0.0035774
-0.0018465
-0.0080554

0.03590
0.15739
-.10193
0.00492
0.08212
0.07800
-.03343
-.23162
-.15952
-.01465
-.00756
-.03300

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. |*.
. |***
**| .
. | .
. |**
. |**
.*| .
*****| .
***| .
. | .
. | .
.*| .

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"." marks two standard errors

Three month treasury bills

2
ARIMA model - to first differences
14:41 Saturday, February 3, 2001
The ARIMA Procedure
Inverse Autocorrelations
Lag

Correlation

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

-0.38226
0.17388
-0.03944
0.09813
-0.15403
0.16052
0.03458
-0.07833
-0.01029
-0.01264
-0.07557
-0.00166
0.12786
-0.22060
0.19060
-0.10958
0.03736
-0.05356
0.07262
0.03663
0.03580
0.02890
0.00507
0.00765

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
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********| .
. |***
.*| .
. |**
***| .
. |***
. |*.
**| .
. | .
. | .
**| .
. | .
. |***
****| .
. |****
**| .
. |*.
.*| .
. |*.
. |*.
. |*.
. |*.
. | .
. | .

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Partial Autocorrelations
Lag

Correlation

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1

5 "&Et=J2KlCia/mJKH"on5Jprq2EIJH"/2



LON jON KkH

1
2
3
4
5
6
7
8
9
10
11
12
13
14

0.27726
-0.19958
-0.00061
-0.03172
0.05661
-0.25850
-0.05221
0.14071
0.08439
-0.04699
0.06148
-0.11389
0.05561
0.13716

|
. |******
|
|
****| .
|
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. | .
|
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.*| .
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. |*.
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*****| .
|
|
.*| .
|
|
. |***
|
|
. |**
|
|
.*| .
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|
. |*.
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**| .
|
|
. |*.
|
|
. |***
|
Three month treasury bills
3
ARIMA model - to first differences
14:41 Saturday, February 3, 2001
The ARIMA Procedure
Partial Autocorrelations

Lag

Correlation

15
16
17
18
19
20
21
22
23
24

-0.13273
0.15741
0.02301
0.01777
-0.13330
-0.08447
-0.07718
-0.04553
-0.01479
-0.01071

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
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***| .
. |***
. | .
. | .
***| .
**| .
**| .
.*| .
. | .
. | .

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Autocorrelation Check for White Noise

To
Lag

ChiSquare

DF

Pr >
ChiSq -------------Autocorrelations------------

6
12
18
24

75.33
130.15
158.33
205.42

6
12
18
24

<.0001 0.277 -0.107 -0.092 -0.037 0.047 -0.186

<.0001 -0.197 0.093 0.194 0.059 -0.007 -0.093
<.0001 0.036 0.157 -0.102 0.005 0.082 0.078
<.0001 -0.033 -0.232 -0.160 -0.015 -0.008 -0.033

Conditional Least Squares Estimation

Parameter
MU
AR1,1
AR1,2
AR1,3

Estimate

Standard
Error

t Value

Approx
Pr > |t|

Lag

0.0071463
0.33494
-0.16456
0.01712

0.02056
0.04287
0.04501
0.04535

0.35
7.81
-3.66
0.38

0.7283
<.0001
0.0003
0.7060

0
1
2
3

EIH"/KJMLONY=+KJ2`[22&PL&N&l
AR1,4
AR1,5
AR1,6
AR1,7
AR1,8
AR1,9
AR1,10

-0.10901
0.14252
-0.21560
-0.08347
0.10382
0.10007
-0.04723

0.04522
0.04451
0.04451
0.04522
0.04536
0.04502
0.04290

-2.41
3.20
-4.84
-1.85
2.29
2.22
-1.10

0.0163
0.0014
<.0001
0.0655
0.0225
0.0267
0.2714

4
5
6
7
8
9
10

Constant Estimate
0.006585
Variance Estimate
0.198648
Std Error Estimate
0.445699
Three month treasury bills
4
ARIMA model - to first differences
14:41 Saturday, February 3, 2001
The ARIMA Procedure
AIC
687.6855
SBC
735.1743
Number of Residuals
554
* AIC and SBC do not include log determinant.

Correlations of Parameter Estimates

Parameter
MU
AR1,1
AR1,2
AR1,3
AR1,4
AR1,5
AR1,6
AR1,7
AR1,8
AR1,9
AR1,10

MU

AR1,1

AR1,2

AR1,3

AR1,4

AR1,5

1.000
0.001
-0.000
-0.001
-0.001
-0.000
-0.001
-0.001
-0.001
-0.001
-0.003

0.001
1.000
-0.315
0.160
-0.020
0.095
-0.131
0.200
0.080
-0.106
-0.085

-0.000
-0.315
1.000
-0.357
0.166
-0.033
0.122
-0.178
0.163
0.123
-0.106

-0.001
0.160
-0.357
1.000
-0.350
0.204
-0.068
0.161
-0.166
0.163
0.080

-0.001
-0.020
0.166
-0.350
1.000
-0.375
0.218
-0.078
0.161
-0.178
0.200

-0.000
0.095
-0.033
0.204
-0.375
1.000
-0.367
0.218
-0.068
0.122
-0.131

Correlations of Parameter Estimates

Parameter
MU
AR1,1
AR1,2
AR1,3
AR1,4
AR1,5
AR1,6
AR1,7
AR1,8
AR1,9
AR1,10

AR1,6

AR1,7

AR1,8

AR1,9

AR1,10

-0.001
-0.131
0.122
-0.068
0.218
-0.367
1.000
-0.375
0.204
-0.033
0.096

-0.001
0.200
-0.178
0.161
-0.078
0.218
-0.375
1.000
-0.350
0.166
-0.020

-0.001
0.080
0.163
-0.166
0.161
-0.068
0.204
-0.350
1.000
-0.357
0.161

-0.001
-0.106
0.123
0.163
-0.178
0.122
-0.033
0.166
-0.357
1.000
-0.315

-0.003
-0.085
-0.106
0.080
0.200
-0.131
0.096
-0.020
0.161
-0.315
1.000

5 "&Et=J2KlCia/mJKH"on5Jprq2EIJH"/2

LON jON KkH

Three month treasury bills

5
ARIMA model - to first differences
14:41 Saturday, February 3, 2001
The ARIMA Procedure
Autocorrelation Check of Residuals
To
Lag

ChiSquare

DF

6
12
18
24
30
36
42
48

0.00
9.56
42.72
62.06
65.76
73.52
74.14
82.20

0
2
8
14
20
26
32
38

Pr >
ChiSq -------------Autocorrelations-----------<.0001
0.0084
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001

0.003
0.036
-0.076
-0.062
0.002
-0.070
-0.007
-0.011

-0.011
-0.001
0.177
-0.149
0.008
-0.004
0.028
-0.000

0.003 0.021 -0.015 -0.031

-0.031 0.018 0.105 -0.040
-0.115 0.081 0.019 0.025
-0.078 -0.025 -0.024 -0.013
0.045 0.048 -0.043 -0.007
-0.051 -0.003 -0.053 -0.052
-0.007 -0.005 0.010 0.006
-0.006 0.001 -0.103 0.050

Autocorrelation Plot of Residuals

Lag Covariance Correlation -1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

0.198648
0.00057812
-0.0020959
0.00068451
0.0041792
-0.0030362
-0.0061377
0.0071315
-0.0001693
-0.0061781
0.0036055
0.020788
-0.0078818
-0.015171
0.035240
-0.022934
0.016000
0.0037288
0.0049781
-0.012221
-0.029590
-0.015566
-0.0050098
-0.0048445
-0.0026174

1.00000
0.00291
-.01055
0.00345
0.02104
-.01528
-.03090
0.03590
-.00085
-.03110
0.01815
0.10465
-.03968
-.07637
0.17740
-.11545
0.08054
0.01877
0.02506
-.06152
-.14896
-.07836
-.02522
-.02439
-.01318

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|********************|
. | .
|
. | .
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. | .
|
. | .
|
. | .
|
.*| .
|
. |*.
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. | .
|
.*| .
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. | .
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. |**
|
.*| .
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**| .
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. |****
|
**| .
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. |**
|
. | .
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. |*.
|
.*| .
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***| .
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**| .
|
.*| .
|
. | .
|
. | .
|

"." marks two standard errors

Three month treasury bills
6
ARIMA model - to first differences
14:41 Saturday, February 3, 2001

EIH"/KJMLONY=+KJ2`[22&PL&N&l
The ARIMA Procedure
Inverse Autocorrelations
Lag

Correlation

1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

-0.04462
0.02988
0.02921
-0.04817
0.00308
0.02072
-0.02134
-0.01272
0.01308
-0.02753
-0.10241
0.03617
0.06350
-0.16306
0.12298
-0.08990
-0.02141
-0.00130
0.04419
0.11901
0.08929
0.02613
0.00628
0.00879

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
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.*| .
. |*.
. |*.
.*| .
. | .
. | .
. | .
. | .
. | .
.*| .
**| .
. |*.
. |*.
***| .
. |**
**| .
. | .
. | .
. |*.
. |**
. |**
. |*.
. | .
. | .

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Partial Autocorrelations
Lag

Correlation

1
2
3
4
5
6
7
8
9
10
11
12
13
14

0.00291
-0.01056
0.00351
0.02091
-0.01534
-0.03040
0.03569
-0.00204
-0.02966
0.01926
0.10200
-0.04035
-0.07248
0.17834

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1

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. | .
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. | .
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. | .
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. | .
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. | .
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.*| .
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. |*.
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. | .
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.*| .
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. | .
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|
. |**
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.*| .
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.*| .
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. |****
|
Three month treasury bills
7
ARIMA model - to first differences
14:41 Saturday, February 3, 2001
The ARIMA Procedure

5 "&Et=J2KlCia/mJKH"on5Jprq2EIJH"/2

LON jON KkH

Partial Autocorrelations
Lag

Correlation

15
16
17
18
19
20
21
22
23
24

-0.13109
0.09936
0.02268
0.00293
-0.05597
-0.13881
-0.10044
-0.02905
-0.00750
-0.00979

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
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***| .
. |**
. | .
. | .
.*| .
***| .
**| .
.*| .
. | .
. | .

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Model for variable z

Estimated Mean
Period(s) of Differencing

0.007146
1

Autoregressive Factors
Factor 1:

1 - 0.33494 B**(1) + 0.16456 B**(2) - 0.01712 B**(3) +

0.10901 B**(4) - 0.14252 B**(5) + 0.2156
B**(6) + 0.08347 B**(7) - 0.10382 B**(8)
- 0.10007 B**(9) + 0.04723 B**(10)

EIH"/KJMLONY=+KJ2`[22&PL&N&l

2 d "Cl%-=2Q/2=Qwd=&dQ d Cv"5K

0-=2Q>C
=NF&CCd3QQC%>"&=Fv
options linesize = 72 ;
data rate1 ;
infile c:\courses\or473\data\fygn.dat ;
input date $ z;
zdif=dif(z) ;
title Three month treasury bills ;
title2 AR(24) model to first differences with backfitting ;
proc autoreg ;
model zdif= / nlag=24 backstep;
run ;

QC%=&C&&
Three month treasury bills
1
AR(24) model to first differences with backfitting
10:32 Wednesday, February 14, 2001
The AUTOREG Procedure
Dependent Variable

zdif

Ordinary Least Squares Estimates

SSE
MSE
SBC
Regress R-Square
Durbin-Watson

135.25253
0.24458
797.34939
0.0000
1.4454

DFE
Root MSE
AIC
Total R-Square

553
0.49455
793.032225
0.0000

Variable

DF

Estimate

Standard
Error

t Value

Approx
Pr > |t|

Intercept

0.006986

0.0210

0.33

0.7397

Estimates of Autocorrelations
Lag

Covariance

Correlation

0
1
2
3
4

0.2441
0.0677
-0.0262
-0.0224
-0.00911

1.000000
0.277260
-0.107364
-0.091587
-0.037332

5 "&Et=J2KlCia/mJKH"on5Jprq2EIJH"/2

C

LON jON KkH

5
6
7
8
9

0.0114
-0.0453
-0.0480
0.0227
0.0474

0.046690
-0.185710
-0.196558
0.093118
0.194318

Estimates of Autocorrelations
Lag
0
1
2
3
4
5
6
7
8
9

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
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|********************|
|******
|
**|
|
**|
|
*|
|
|*
|
****|
|
****|
|
|**
|
|****
|
Three month treasury bills
2
AR(24) model to first differences with backfitting
10:32 Wednesday, February 14, 2001
The AUTOREG Procedure
Estimates of Autocorrelations
Lag

Covariance

Correlation

10
11
12
13
14
15
16
17
18
19
20
21
22
23
24

0.0143
-0.00171
-0.0226
0.00876
0.0384
-0.0249
0.00120
0.0200
0.0190
-0.00816
-0.0565
-0.0389
-0.00358
-0.00185
-0.00806

0.058501
-0.006997
-0.092572
0.035897
0.157393
-0.101930
0.004923
0.082117
0.078001
-0.033427
-0.231618
-0.159520
-0.014653
-0.007563
-0.032995

Estimates of Autocorrelations
Lag
10
11
12
13
14
15

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
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|*
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**|
|*
|***
**|

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EIH"/KJMLONY=+KJ2`[22&PL&N&l
16
17
18
19
20
21
22
23
24

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|**
|**
*|
*****|
***|
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*|

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Three month treasury bills

3
AR(24) model to first differences with backfitting
10:32 Wednesday, February 14, 2001
The AUTOREG Procedure
Backward Elimination of
Autoregressive Terms
Lag

Estimate

t Value

Pr > |t|

10
23
17
3
24
13
7
18
22
20
4
9

0.007567
0.010212
0.008951
-0.014390
0.015798
0.041434
0.038880
-0.037456
0.042555
0.058230
0.059903
-0.058141

0.16
0.22
0.19
-0.32
0.40
0.92
0.85
-0.90
1.02
1.31
1.48
-1.42

0.8721
0.8241
0.8492
0.7496
0.6907
0.3605
0.3964
0.3702
0.3090
0.1912
0.1389
0.1562

Preliminary MSE

0.1765

Estimates of Autoregressive Parameters

Lag

Coefficient

Standard
Error

t Value

1
2
5
6
8
11
12
14
15
16
19
21

-0.388246
0.200242
-0.108069
0.249095
-0.103462
-0.102896
0.119950
-0.204702
0.223381
-0.151917
0.103356
0.108074

0.040419
0.040438
0.040513
0.039719
0.039668
0.040278
0.040704
0.040427
0.042441
0.040811
0.038847
0.039511

-9.61
4.95
-2.67
6.27
-2.61
-2.55
2.95
-5.06
5.26
-3.72
2.66
2.74

5 "&Et=J2KlCia/mJKH"on5Jprq2EIJH"/2

LON jON KkH

Three month treasury bills

4
AR(24) model to first differences with backfitting
10:32 Wednesday, February 14, 2001
The AUTOREG Procedure
Expected
Autocorrelations
Lag

Autocorr

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

1.0000
0.2840
-0.1196
-0.0801
0.0273
0.0656
-0.1914
-0.1923
0.0880
0.1549
0.0223
-0.0229
-0.0737
0.0767
0.1628
-0.1000
-0.0017
0.0685
0.0437
-0.0638
-0.1968
-0.1296

Yule-Walker Estimates
SSE
MSE
SBC
Regress R-Square
Durbin-Watson

Variable

DF

Intercept

97.7597462
0.18070
695.767655
0.0000
2.0627

Estimate

DFE
Root MSE
AIC
Total R-Square

Standard
Error

541
0.42509
639.644514
0.2772

t Value

Approx
Pr > |t|

0.006664
0.0192
0.35
0.7289
Three month treasury bills
5
AR(24) model to first differences with backfitting
10:32 Wednesday, February 14, 2001
The AUTOREG Procedure

EIH"/KJMLONY=+KJ2`[22&PL&N&l
Expected
Autocorrelations

u vt

Lag

Autocorr

0
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21

1.0000
0.2840
-0.1196
-0.0801
0.0273
0.0656
-0.1914
-0.1923
0.0880
0.1549
0.0223
-0.0229
-0.0737
0.0767
0.1628
-0.1000
-0.0017
0.0685
0.0437
-0.0638
-0.1968
-0.1296

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% portfolio03.m
% Matlab program to plot efficient frontier and minimum
% variance portfolio
% Any text the follows a percent sign (like this text) is a comment
% Input mean vector and covariance matrix of returns here
% I am trying to follow the notation in the lecture notes.
% A "b" in front of a name means "bold face"
bmu = [.08;.03;.05] ;
bOmega = [ .3 .02 .01 ;
.02 .15 .03 ;
.01 .03 .18 ] ;
bone = ones(length(bmu),1) ; % Define vector of ones
ibOmega = inv(bOmega) ; % Invert Omega - "i" means inverse
A = bone*ibOmega*bmu ;
B = bmu*ibOmega*bmu ;
C = bone*ibOmega*bone ;
D = B*C - A2 ;
bg = (B*ibOmega*bone - A*ibOmega*bmu)/D ;
bh = (C*ibOmega*bmu - A*ibOmega*bone)/D ;
% Compute minimum expected return and minimum return SD
gg = bg*bOmega*bg ;
hh = bh*bOmega*bh ;
gh = bg*bOmega*bh ;
mumin = - gh/hh ;
sdmin = sqrt( gg * ( 1 - gh2/(gg*hh)) ) ;
muP = linspace(min(bmu),max(bmu),50) ; % muP grid
sigmaP = zeros(1,50) ; % Storage

for i=1:50 ;
omegaP = bg + muP(i)*bh ;
sigmaP(i) = sqrt(omegaP*bOmega*omegaP) ;
end ;
fsize = 16 ;
ind = (muP > mumin) ; % Indicates efficient horizon
ind2 = (muP < mumin) ; % Indicates locus below efficient horizon
% Create plot - efficient horizon is shown as a solid curve

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p1 = plot(sigmaP(ind),muP(ind),-,sigmaP(ind2),muP(ind2),-- , ...
sdmin,mumin,.) ;
% Change line widths, marker sizes, and colors for better appearance
set(p1(1:2),linewidth,4) ;
set(p1(1:2),color,blue) ;
set(p1(3),markersize,40) ;
set(p1(3),color,red) ;
% Label axes
xlabel(standard deviation of return,fontsize,fsize) ;
ylabel(expected return,fontsize,fsize) ;
set(gca,xlim,[0, .5]) ;
set(gca,ylim,[0, .08]) ;
grid ;
% Print plot as a color postscript file
print portfolio03.ps -depsc ;
!mv portfolio03.ps /public_html/or473/LectNotes/portfolio03.ps ;

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% portfolio04 - extension of portfolio03
% Input mean vector and covariance matrix of returns here
bmu = [.08;.03;.05] ;
bOmega = [ .3 .02 .01 ;
.02 .15 .03 ;
.01 .03 .18 ] ;
bOmega = diag(diag(bOmega)) ;
muf = .02 ;
bone = ones(length(bmu),1) ;

muP = linspace(min(bmu),max(bmu),50) ;
sigmaP = zeros(1,50) ;
ibOmega = inv(bOmega) ;
A = bone*ibOmega*bmu ;
B = bmu*ibOmega*bmu ;
C = bone*ibOmega*bone ;
D = B*C - A2 ;
bg = (B*ibOmega*bone - A*ibOmega*bmu)/D ;
bh = (C*ibOmega*bmu - A*ibOmega*bone)/D ;
for i=1:50 ;
omegaP = bg + muP(i)*bh ;
sigmaP(i) = sqrt(omegaP*bOmega*omegaP) ;
end ;

% Compute minimum expected return and minimum return SD

gg = bg*bOmega*bg ;
hh = bh*bOmega*bh ;
gh = bg*bOmega*bh ;
mumin = - gh/hh ;

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sdmin = sqrt( gg * ( 1 - gh2/(gg*hh)) ) ;

bomegabar = ibOmega*(bmu - muf*bone) ;

bomegaT = bomegabar/(bone*bomegabar) ;
sigmaT = sqrt(bomegaT*bOmega*bomegaT) ;
muT = bmu*bomegaT ;
fsize = 16 ;
fsize2 = 35 ;
bomegaP2 = [0;.3;.7] ;
sigmaP2 = sqrt(bomegaP2*bOmega*bomegaP2) ;
muP2 = bmu*bomegaP2 ;
ind = (muP > mumin) ; % Indicates efficient horizon
ind2 = (muP < mumin) ; % Indicates locus below efficient horizon
clf ;
p1 = plot(sigmaP(ind),muP(ind),-,sigmaP(ind2),muP(ind2), ...
-- ,sdmin,mumin,.) ;
l1 = line([0,sigmaT],[muf,muT]) ;
t1= text(sigmaP2,muP2,* P,fontsize,fsize2) ;
t2= text(sigmaT,muT,* T,fontsize,fsize2) ;
t3=text(.01,muf+.006,F,fontsize,fsize2) ;
t3B= text(0,muf,*,fontsize,fsize2) ;
set(p1(1:2),linewidth,4) ;
set(p1(3),markersize,40) ;
set(p1(3),color,red) ;
set(l1,linewidth,4) ;
set(l1,linestyle,--) ;
xlabel(standard deviation of return,fontsize,fsize) ;
ylabel(expected return,fontsize,fsize) ;
grid ;
print portfolio04.ps -depsc ;
!mv portfolio04.ps /public_html/or473/LectNotes/portfolio04.ps ;

mm
Nw

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0.07

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0.05

*P
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0.03

0.02

F
*

0.05

0.1

0.15

0.2

0.25

0.3

0.35

0.4

0.45

0.5

standard deviation of return


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QUADPROG Quadratic programming.
programming problem:
min 0.5*x*H*x + f*x
x

subject to:

X=QUADPROG(H,f,A,b) solves the quadratic

A*x <= b

X=QUADPROG(H,f,A,b,Aeq,beq) solves the problem above while additionally satisfying

the equality constraints Aeq*x = beq.
X=QUADPROG(H,f,A,b,Aeq,beq,LB,UB) defines a set of lower and upper bounds
on the design variables, X, so that the solution is in the range LB <= X <=
UB. Use empty matrices for LB and UB if no bounds exist. Set LB(i) = -Inf if
X(i) is unbounded below; set UB(i) = Inf if X(i) is unbounded above.
X=QUADPROG(H,f,A,b,Aeq,beq,LB,UB,X0) sets the starting point to X0.
X=QUADPROG(H,f,A,b,Aeq,beq,LB,UB,X0,OPTIONS) minimizes with the default optimization
parameters replaced by values in the structure OPTIONS, an argument created
with the OPTIMSET function. See OPTIMSET for details. Used options are Display,
Diagnostics, TolX, TolFun, HessMult, LargeScale, MaxIter, PrecondBandWidth,
TypicalX, TolPCG, and MaxPCGIter. Currently, only final and off are valid
values for the parameter Display (iter is not available).
X=QUADPROG(Hinfo,f,A,b,Aeq,beq,LB,UB,X0,OPTIONS,P1,P2,...) passes the problem-dependent
parameters P1,P2,... directly to the HMFUN function when OPTIMSET(HessMult,HMFUN)
is set. HMFUN is provided by the user. Pass empty matrices for A, b, Aeq,
beq, LB, UB, XO, OPTIONS, to use the default values.
[X,FVAL]=QUADPROG(H,f,A,b) returns the value of the objective function at
X: FVAL = 0.5*X*H*X + f*X.
[X,FVAL,EXITFLAG] = QUADPROG(H,f,A,b) returns a string EXITFLAG that describes
the exit condition of QUADPROG. If EXITFLAG is: > 0 then QUADPROG converged
with a solution X. 0 then the maximum number of iterations was exceeded (only
occurs with large-scale method). < 0 then the problem is unbounded, infeasible,
or QUADPROG failed to converge with a solution X.
[X,FVAL,EXITFLAG,OUTPUT] = QUADPROG(H,f,A,b) returns a structure OUTPUT with
the number of iterations taken in OUTPUT.iterations, the type of algorithm used
in OUTPUT.algorithm, the number of conjugate gradient iterations (if used) in
OUTPUT.cgiterations, and a measure of first order optimality (if used) in OUPUT.firstorderopt.
[X,FVAL,EXITFLAG,OUTPUT,LAMBDA]=QUADPROG(H,f,A,b) returns the set of Lagrangian
multipliers LAMBDA, at the solution: LAMBDA.ineqlin for the linear inequalities
A, LAMBDA.eqlin for the linear equalities Aeq, LAMBDA.lower for LB, and LAMBDA.upper
for Q
UB.
@;(:%(D;C
D%: 


 


% Program portfolio02QP
% Lasted changed: 3/4/02
% Input mean vector and covariance matrix of returns here
bmu = [.08;.03;.05] ;
bOmega = [ .3 .02 .01 ;
.02 .15 .03 ;
.01 .03 .18 ] ;

 "!$#%'&()+*,*,.-/(

0"10

Aeq = [ones(1,3);bmu] ;
bone = ones(length(bmu),1) ;

% Compute minimum expected return and minimum return SD

ibOmega = inv(bOmega) ; % Invert Omega - "i" means inverse
A = bone*ibOmega*bmu ;
B = bmu*ibOmega*bmu ;
C = bone*ibOmega*bone ;
D = B*C - A2 ;
bg = (B*ibOmega*bone - A*ibOmega*bmu)/D ;
bh = (C*ibOmega*bmu - A*ibOmega*bone)/D ;
gg = bg*bOmega*bg ;
hh = bh*bOmega*bh ;
gh = bg*bOmega*bh ;
mumin = - gh/hh ;
sdmin = sqrt( gg * ( 1 - gh2/(gg*hh)) ) ;
ngrid = 25 ;
muP = linspace(mumin,.08,ngrid)
sigmaP = muP ; % Set up storage
sigmaP2 = sigmaP ;
omegaP = zeros(3,ngrid) ;
omegaP2 = omegaP ;

; % Grid of muP values

for i = 1:ngrid ;
omegaP(:,i) = quadprog(bOmega,zeros(3,1),-eye(3),zeros(3,1),Aeq,[1;muP(i)]) ;
omegaP2(:,i) = quadprog(bOmega,zeros(3,1),zeros(1,3),0,Aeq,[1;muP(i)]) ;
sigmaP(i) = sqrt(omegaP(:,i)*bOmega*omegaP(:,i)) ;
sigmaP2(i) = sqrt(omegaP2(:,i)*bOmega*omegaP2(:,i)) ;
end ;
fsize = 16 ;
figure(1)
clf
p = plot(sigmaP,muP,sigmaP2,muP,--) ;
set(p(1),color,red) ;
set(p(2),color,blue) ;
set(p,linewidth,6) ;
l=legend(no negative wts,unconstrained wts,4) ;
set(gca,fontsize,fsize) ;
set(l,fontsize,fsize) ;
xlabel(standard deviation of return (\sigma_P),fontsize,fsize) ;
ylabel(expected return (\mu_P),fontsize,fsize) ;
text(sqrt(bOmega(1,1)),bmu(1),1,fontsize,24) ;
text(sqrt(bOmega(2,2)),bmu(2),2,fontsize,24) ;

0"1

!324#567/'#5&893&8:7;&=<>67:76?!?;&-/@BA"CD>E
D%A"E

text(sqrt(bOmega(3,3)),bmu(3),3,fontsize,24) ;
set(gca,ylim,[.025,.085]) ;
grid ;
print portfolio02QP.ps -depsc ;
!mv portfolio02QP.ps /public_html/or473/LectNotes/portfolio02QP.ps ;

figure(2)
p2 = plot(muP,omegaP(1,:),muP,omegaP(2,:),--,muP,omegaP(3,:),-.) ;
set(p2,linewidth,6) ;
set(gca,fontsize,fsize) ;
grid ;
xlabel(\mu_P,fontsize,fsize) ;
ylabel(weight,fontsize,fsize) ;
legend(w_1,w_2,w_3,0) ;
print portfolio02_wtQP.ps -depsc ;
!mv portfolio02_wtQP.ps /public_html/or473/LectNotes/portfolio02_wtQP.ps ;

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Welcome to Minitab, press F1 for help.

1252 rows read.
Saving file as:
C:\courses\or473\minitab\WeeklyInterest.MTW
Macro is running ... please wait
Results for: WeeklyInterest.MTW
Regression Analysis: aaa_diff versus cm10_diff

The regression equation is

aaa_diff = 0.0002266 + 0.572371 cm10_diff
S = 0.0633340

R-Sq = 68.5 %

R-Sq(adj) = 68.5 %

Analysis of Variance
Source
Regression
Error
Total

DF
1
1249
1250

SS
10.8950
5.0100
15.9049

MS
10.8950
0.0040

F
2716.14

P
0.000

Fitted Line Plot: aaa_diff versus cm10_diff

Q@;(:%(

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Regression Analysis: aaa_diff versus cm10_diff

 E'<x5;()2/:.-4656)()67<><k;&8-

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The regression equation is

aaa_diff = 0.00023 + 0.572 cm10_diff
1251 cases used 1 cases contain missing values
Predictor
Constant
cm10_dif

Coef
0.000227
0.57237

S = 0.06333

SE Coef
0.001791
0.01098

R-Sq = 68.5%

T
0.13
52.12

P
0.899
0.000

R-Sq(adj) = 68.5%

Analysis of Variance
Source
DF
Regression
1
Residual Error 1249
Total
1250

SS
10.895
5.010
15.905

MS
10.895
0.004

F
2716.14

P
0.000

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Regression Analysis: aaa_diff versus cm10_diff, cm30_diff

The regression equation is

aaa_diff = 0.00005 + 0.551 cm10_diff + 0.0284 cm30_diff
1251 cases used 1 cases contain missing values
Predictor
Constant
cm10_dif
cm30_dif

Coef
0.000047
0.55059
0.028358

S = 0.06304

SE Coef
0.001783
0.01252
0.007936

R-Sq = 68.8%

T
0.03
43.99
3.57

P
0.979
0.000
0.000

R-Sq(adj) = 68.8%

Analysis of Variance
Source
Regression
Residual Error
Total
Source
cm10_dif
cm30_dif

DF
1
1

DF
2
1248
1250

SS
10.9457
4.9592
15.9049

MS
5.4728
0.0040

F
1377.25

P
0.000

Seq SS
10.8950
0.0507

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Response is aaa_diff
1251 cases used 1 cases contain missing values.

Vars

R-Sq

R-Sq(adj)

C-p

1
1
2

68.5
20.5
68.8

68.5
20.4
68.8

13.8
1936.3
3.0

0.063334
0.10064
0.063038

c
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Response is aaa_diff
1251 cases used 1 cases contain missing values.

Vars

R-Sq

R-Sq(adj)

C-p

1
1
1
2
2
2
3
3
3
4

68.5
20.5
5.6
68.8
68.5
68.5
68.8
68.8
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68.8

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5.5
68.8
68.5
68.5
68.8
68.8
68.5
68.7

12.8
1934.0
2529.9
2.1
14.0
14.4
3.2
3.6
15.8
5.0

0.063334
0.10064
0.10966
0.063038
0.063337
0.063348
0.063040
0.063052
0.063358
0.063061

GF

c
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options linesize = 64 ;
data bondprices ;
infile c:\courses\or473\data\bondprices.dat ;
input maturity price ;
run ;
title Nonlinear regression using simulated zero-coupon bond data;
proc nlin ;
parm r=.02 to .09 by .005 ;
model price = 1000*exp(-r*maturity) ;
run ;

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Nonlinear regression using simulated zero-coupon bond data 1

12:50 Thursday, January 31, 2002
The NLIN Procedure
Grid Search
Dependent Variable price

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Sum of
Squares

0.0200
0.0250
0.0300
0.0350
0.0400
0.0450
0.0500
0.0550
0.0600
0.0650
0.0700
0.0750
0.0800
0.0850
0.0900

390066
279853
192505
124990
74665.1
39230.4
16679.7
5263.9
3456.9
9926.6
23509.9
43191.1
68082.5
97408.6
130491

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Nonlinear regression using simulated zero-coupon bond data 2

12:50 Thursday, January 31, 2002
The NLIN Procedure
Iterative Phase
Dependent Variable price
Method: Gauss-Newton

Iter

Sum of
Squares

0
1
2

0.0600
0.0585
0.0585

3456.9
3072.8
3072.8

NOTE: Convergence criterion met.

Estimation Summary
Method
Iterations
R
PPC(r)
RPC(r)
Object
Objective
Observations Read
Observations Used
Observations Missing

Gauss-Newton
2
4.889E-6
3.518E-7
0.000104
2.084E-6
3072.809
9
9
0

NOTE: An intercept was not specified for this model.

0"
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DF

Sum of
Squares

Mean
Square

Regression
Residual
Uncorrected Total

1
8
9

4490011
3072.8
4493084

4490011
384.1

Corrected Total

252587

Source

Parameter

Estimate

Approx
Std Error

0.0585

0.00149

F Value

Approx
Pr > F

11689.7

<.0001

Approximate 95%
Confidence Limits
0.0551

0.0619

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Regression Analysis: X:MS_1 versus X:S&P_1

The regression equation is

X:MS_1 = 0.0119 + 1.44 X:S&P_1
Predictor
Constant
X:S&P_1
S = 0.1175

Coef
0.01190
1.4411

SE Coef
0.01532
0.3174

R-Sq = 26.2%

T
0.78
4.54

P
0.441
0.000

R-Sq(adj) = 24.9%

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Analysis of Variance
Source
Regression
Residual Error
Total

DF
1
58
59

SS
0.28464
0.80098
1.08562

Unusual Observations
Obs
X:S&P_1
X:MS_1
49
0.129
0.1258
50
-0.044
-0.4040
58
-0.020
-0.4249
59
0.015
0.3164

MS
0.28464
0.01381

Fit
0.1973
-0.0518
-0.0166
0.0337

F
20.61

SE Fit
0.0416
0.0222
0.0173
0.0154

P
0.000

Residual
-0.0715
-0.3521
-0.4083
0.2828

St Resid
-0.65 X
-3.05R
-3.51R
2.43R

R denotes an observation with a large standardized residual

X denotes an observation whose X value gives it large influence.

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Regression Analysis: X:MS_1 versus X:S&P_1

The regression equation is
X:MS_1 = 1.48 X:S&P_1
Predictor
Noconstant
X:S&P_1

Coef

SE Coef

1.4755

0.3133

4.71

0.000

S = 0.1171
Analysis of Variance
Source
Regression
Residual Error
Total

DF
1
59
60

SS
0.30432
0.80931
1.11362

Unusual Observations
Obs
X:S&P_1
X:MS_1
15
0.100
0.1040
30
-0.100
-0.0705
33
0.109
0.1906
45
0.084
-0.0017
49
0.129
0.1258
50
-0.044
-0.4040
58
-0.020
-0.4249
59
0.015
0.3164

MS
0.30432
0.01372

Fit
0.1479
-0.1473
0.1606
0.1240
0.1899
-0.0653
-0.0292
0.0223

F
22.19

SE Fit
0.0314
0.0313
0.0341
0.0263
0.0403
0.0139
0.0062
0.0047

P
0.000

Residual
-0.0439
0.0767
0.0300
-0.1257
-0.0640
-0.3387
-0.3958
0.2941

St Resid
-0.39 X
0.68 X
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-2.91R
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R denotes an observation with a large standardized residual

X denotes an observation whose X value gives it large influence.

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White noise

Conditional std dev

1
4
0
3
1
2

2
3

20

40

60

ARCH(1)

20

40

60

AR(1)/ARCH(1))

0
5
2
10

4
6

20

40

60

15

20

40

W
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White noise

Conditional std dev

25
20

15
0
10
2

4
0

200

400

600

0
0

ARCH(1)

200

400

600

AR(1)/ARCH(1))

30

40

20
20

10
0

10
20
0

200

400

600

20
0

200

400

600

Probability

normal plot of ARCH(1)

0.999
0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.001
10

10
Data

20

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White noise

  R <


Conditional std dev

12

3
10

2
1

0
6

1
2

3
4

200

400

600

GARCH(1,1)

200

400

600

AR(1)/GARCH(1,1))

30

40

20

30
20

10

10
0
0
10

10

20
30

20
0

200

400

600

30

200

400

600

normal plot of GARCH(1,1)

Probability

0.999
0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.001
20

10

0
Data

10

20


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Densities

Densities detail

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0.025
normal
normal mix

0.3

normal
normal mix

0.02
0.015

0.2
0.01
0.1
0

0.005
5

0
4

10

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
2

0
Data

10

12

Normal plot normal mix

Probability

Probability

Normal plot normal

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
10

10

Data


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options linesize = 65 ;
data arch ;
infile c:\courses\or473\sas\garch02.dat ;
input y ;
run ;
title Simulated ARCH(1)/AR(1) data ;
proc autoreg ;
model y =/nlag = 1 archtest garch=(q=1);
run ;

8 E! %:H::! V !bIb1EU! \aL

b:c:! )!bC!bWb!Eb! !1
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i3

jlk mIn k oUprqPs$n tUuwvUxvqSyUn zlyUnSs{qS|,n tUuwmIk }~yU n uUn

Simulated ARCH(1)/AR(1) data
13:01 Wednesday, April 4, 2001

The AUTOREG Procedure

Dependent Variable

Ordinary Least Squares Estimates

SSE
MSE
SBC
Regress R-Square
Durbin-Watson

2693.22931
9.00746
1515.48103
0.0000
0.4373

DFE
Root MSE
AIC
Total R-Square

299
3.00124
1511.77725
0.0000

Q and LM Tests for ARCH Disturbances

Order

1
2
3
4
5
6
7
8
9
10
11
12

119.7578
137.9967
140.5454
140.6837
140.6925
140.7476
141.0173
141.5401
142.1243
142.6266
142.7506
142.7508

Pr > Q
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001

LM
118.6797
129.8491
131.4911
132.1098
132.3810
132.7534
132.7543
132.8874
132.8879
132.9226
133.0153
133.0155

Pr > LM
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001

Standard
Variable

DF

Approx
Estimate

Error

t Value

Pr > |t|

Intercept

0.8910

0.1733

5.14

<.0001

Estimates of Autocorrelations
Lag

Covariance

Correlation

0
1

8.9774
7.0075

1.000000
0.780567

Estimates of Autocorrelations
Lag
0
1

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1
|
|

|********************|
|****************
|

5

^$_['T2eU]NPOX\[]9^$_a`cbBdfeUglhPP

Simulated ARCH(1)/AR(1) data

13:01 Wednesday, April 4, 2001

The AUTOREG Procedure

Preliminary MSE

3.5076

Estimates of Autoregressive Parameters

Standard
Lag
Coefficient
1

-0.780567

Error

t Value

0.036209

-21.56

Algorithm converged.

GARCH Estimates
SSE
MSE
Log Likelihood
SBC
Normality Test

Standard
Variable
Intercept
AR1
ARCH0
ARCH1

l l

1056.42037
3.52140
-549.43844
1121.69201
1.5134

DF
1
1
1
1

Observations
Uncond Var
Total R-Square
AIC
Pr > ChiSq

300
3.72785257
0.6077
1106.87688
0.4692

Approx
Estimate

Error

t Value

Pr > |t|

0.4810
-0.8226
1.1241
0.6985

0.3910
0.0266
0.1729
0.1167

1.23
-30.92
6.50
5.98

0.2187
<.0001
<.0001
<.0001

l
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^$_['T2eU]NPOX\[]9^$_a`cbBdfeUglhPP

0.15
0.1

return residual

0.05
0
0.05
0.1
0.15
0.2
60

65

70

75

80
year

85

90

95

 3 5P

 
 

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5

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J RHOPH*Q
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H*OUOPEGOh1YXZH*[(K\ZH*FU2]J RH
@? BA&C

[EGDD ? LNF\

proc autoreg ;
model returnsp = DR3 gpw/nlag = 1

archtest garch=(p=1,q=1);

? LRF
J RH9`J ? J/H*DH*LNJ`OPH*J/aZOUL YXfbC'Q%X \YXZH*[(K\ZH_J NHOPH*Q
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J ? JR J RH S
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jlk mIn k oUprqPs$n tUuwvUxvzU|{qSpP|{}

options linesize = 65 ;
data arch ;
infile c:\courses\or473\data\pindyck105.dat ;
input month year RETURNSP FSPCOM FSDXP R3 PW GPW;
DR3 = dif(R3) ;
run ;
title S&P 500 monthly data from Pindyck & Rubinfeld, Ex 10.5 ;
title2 AR(1)/GARCH(1,1) model ;
proc autoreg ;
model returnsp =/nlag = 1 archtest garch=(p=1,q=1);
run ;
title2 Regression model with AR(1)/GARCH(1,1) ;
proc autoreg ;
model returnsp = DR3 gpw/nlag = 1 archtest garch=(p=1,q=1);
run ;

VkAbEGaZJ/XZaZJ 1YJ/H*FGHKE!
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OPH ? [INH*F\

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^$_['T2eU]NPOX\[]9^$_a`cbBdfeUglhPP

 !
? LRFeo pJ/H
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HG!KJZ[EGLNF KJKEGL ? PNH*J

 ( K
9L ? O9 H ? YJ :%a ? OH
HYJKD ? J/HgE!NJ RHOPH*Q
OPH>:9EGLSX ? O ? DHdJ/H*O ? OPHS

UNHX
? 9aZH
_E RJ NHn
UNH*OPH /EGOPH kJ RHH*OUOPEGO
H*OPE2Y [HdF ? `J 9[ KJ 
&OPF

Variable
Intercept
DR3
GPW

DF

Estimate

Standard
Error

t Value

Approx
Pr > |t|

1
1
1

0.0120
-0.8293
-0.8550

0.001755
0.3061
0.2349

6.86
-2.71
-3.64

<.0001
0.0070
0.0003

KLNQ4OPH
KFTa ? 1/OPEGDqJ RH9&o & HYJKD ? J/HJ RHcH
YJKD ? J/H*FrOPH:9FIa ? ? aZJ/E2

[EGOUOPH ? JKEGL ? OPHS

Estimates of Autocorrelations
Lag

Covariance

Correlation

0
1

0.00108
0.000253

1.000000
0.234934

A`E!a KLNQ&o &

OPHKFIa ? 1J NHH`J9D ? J/HA&CsX ? O ? DH*J/HdO1=

Estimates of Autoregressive Parameters

Lag

Coefficient

Standard
Error

t Value

-0.234934

0.046929

-5.01

c:BA&CH8::H*OUOPEGO=J RHHYJKD

A>YaZD KLNQtA1C
J N HOPH*Q
OPH
> KEGL

Variable
Intercept
DR3
GPW

? OPHS

? J/H*FuX ? O ? DH*J/HdOVE!

DF

Estimate

Standard
Error

t Value

Approx
Pr > |t|

1
1
1

0.0125
-1.0665
-0.7239

0.001875
0.3282
0.1992

6.66
-3.25
-3.63

<.0001
0.0012
0.0003

v MEGJ9[HJ ? JNJ NH
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AR1
ARCH0
ARCH1
GARCH1

55

? J/H*FA1CHwX ? O ? DHdJ/H*O ? OHS

1
1
1
1

-0.2016
0.000147
0.1337
0.7254

0.0603
0.0000688
0.0404
0.0918

-3.34
2.14
3.31
7.91

0.0008
0.0320
0.0009
<.0001

v J RHiH
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 ? KaZH ? OPHYD ?  ? 2BA&CHzX ? O ? DH*J/H*O ? OPHKQ
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5

^$_['T2eU]NPOX\[]9^$_a`cbBdfeUglhPP
jUk mIn k oUpqSs$vUxvqSyUn zUyln
S&P 500 monthly data from Pindyck & Rubinfeld, Ex 10.5
1
Regression model with AR(1)/GARCH(1,1)
17:04 Tuesday, April 10, 2001
The AUTOREG Procedure
Dependent Variable

RETURNSP

Ordinary Least Squares Estimates

SSE
MSE
SBC
Regress R-Square
Durbin-Watson

0.46677572
0.00109
-1711.5219
0.0551
1.5203

DFE
Root MSE
AIC
Total R-Square

430
0.03295
-1723.7341
0.0551

Q and LM Tests for ARCH Disturbances

Order
1
2
3
4
5
6
7
8
9
10
11
12

Variable
Intercept
DR3
GPW

Pr > Q

LM

Pr > LM

26.8804
27.1508
28.2188
28.6957
33.4112
34.0892
34.4187
34.6542
35.2228
35.3047
35.8274
36.0142

<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
0.0001
0.0002
0.0003

26.5159
27.1519
28.4391
28.4660
32.6168
32.6962
32.9617
32.9636
33.3330
33.4174
33.9440
33.9507

<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
<.0001
0.0001
0.0002
0.0004
0.0007

DF

Estimate

Standard
Error

t Value

Approx
Pr > |t|

1
1
1

0.0120
-0.8293
-0.8550

0.001755
0.3061
0.2349

6.86
-2.71
-3.64

<.0001
0.0070
0.0003

Estimates of Autocorrelations
Lag

Covariance

Correlation

0
1

0.00108
0.000253

1.000000
0.234934

NPO{O9R}|X\[]9^$_a`cbBdfeUgUh

5P

S&P 500 monthly data from Pindyck & Rubinfeld, Ex 10.5

2
Regression model with AR(1)/GARCH(1,1)
17:04 Tuesday, April 10, 2001
The AUTOREG Procedure
Estimates of Autocorrelations
Lag

-1 9 8 7 6 5 4 3 2 1 0 1 2 3 4 5 6 7 8 9 1

0
1

|
|

|********************|
|*****
|

Preliminary MSE

0.00102

Estimates of Autoregressive Parameters

Lag

Coefficient

Standard
Error

t Value

-0.234934

0.046929

-5.01

Algorithm converged.

GARCH Estimates
SSE
MSE
Log Likelihood
SBC
Normality Test

Variable
Intercept
DR3
GPW
AR1
ARCH0
ARCH1
GARCH1

~g/g

0.44176656
0.00102
889.071523
-1735.6479
43.0751

Observations
Uncond Var
Total R-Square
AIC
Pr > ChiSq

433
0.00104656
0.1058
-1764.143
<.0001

DF

Estimate

Standard
Error

t Value

Approx
Pr > |t|

1
1
1
1
1
1
1

0.0125
-1.0665
-0.7239
-0.2016
0.000147
0.1337
0.7254

0.001875
0.3282
0.1992
0.0603
0.0000688
0.0404
0.0918

6.66
-3.25
-3.63
-3.34
2.14
3.31
7.91

<.0001
0.0012
0.0003
0.0008
0.0320
0.0009
<.0001

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= .9
1

50
0
50
100
150
0

0.5

1.5

2.5

3.5

4
4

1 = 1

x 10

200

100

100
0

0.5

1.5

2.5

3.5

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4

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Probability

1 = .9
0.999
0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.001
100

80

60

40

20

20

40

=1

Probability

0.999
0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.001
50

50

100

150

Probability

1 = 1.8
0.999
0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.001
4

4
4

x 10

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1 = 0.95, Conditional std dev

1 = 0.95, GARCH(1,1)

30

30

25

20

20

10

15
0

10

10

5
0

500

1000

1500

2000

20

1 = 0.4, Conditional std dev

500

1000

1500

2000

1 = 0.4, GARCH(1,1)

30

40

25
20
20
15

10
20
5
0

500

1000

1500

2000

40

1 = 0.2, Conditional std dev

500

1000

1500

2000

1 = 0.2, GARCH(1,1)

200

300
200

150
100
100

0
100

50
200
0

500

1000

1500

2000

300

1 = 0.05, Conditional std dev

100

30

50

20

10

50

500

1000

1500

1000

1500

2000

1 = 0.05, GARCH(1,1)

40

500

2000

100

500

1000

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= .9
1

0.5

0.5

1
0

0.5

1.5

2.5

3.5

4
4

1 = 1

x 10

4
2
0
2
4
6
0

0.5

1.5

2.5

3.5

4
4

1 = 1.8

x 10

15
10
5
0
5
0

0.5

1.5

2.5

3.5

4
4

x 10

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1 = .9
8
6
4
2
0
0

0.5

1.5

2.5

3.5

4
4

1 = 1

x 10

150

100

50

0
0

0.5

1.5

2.5

3.5
x 10

x 10

4
4

= 1.8

3
2
1
0
0

0.5

1.5

2.5

3.5

4
4

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Regression model with AR(1)/E-GARCH(1,1)-M
11:52 Sunday, April 15, 2001
The AUTOREG Procedure
Estimates of Autoregressive Parameters

Lag

Coefficient

Standard
Error

t Value

-0.234934

0.046929

-5.01

Algorithm converged.
Exponential GARCH Estimates
SSE
MSE
Log Likelihood
SBC
Normality Test

Variable
Intercept
DR3
GPW
AR1
EARCH0
EARCH1
EGARCH1
THETA
DELTA

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0.00102
900.962569
-1747.2885
24.9607

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Uncond Var
Total R-Square
AIC
Pr > ChiSq

433
.
0.1050
-1783.9251
<.0001

DF

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Standard
Error

t Value

Approx
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maturity in years
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options linesize=64;
data USstrips ;
infile c:\courses\or473\data\strips.dat ;
input today maturity price time2mat;
time2mat = time2mat/365 ;
title Nonlinear regression using US STRIPS bond data;
proc nlin ;
parm beta0=.02 to .09 by .005 beta1= -.01 to .01 by .005 ;
model price = 100*exp(-beta0*time2mat - (beta1*(time2mat)**2)/2 ) ;
run ;

(- ?$)w  B` Q $ $

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NL regression using US STRIPS data, linear

1
09:24 Thursday, April 4, 2002
The NLIN Procedure
Grid Search
Dependent Variable price

beta0

beta1

Sum of
Squares

0.0200
0.0250
0.0300
0.0350
0.0400
0.0450

-0.0100
-0.0100
-0.0100
-0.0100
-0.0100
-0.0100

2.9019E8
2.1996E8
1.6673E8
1.2637E8
95772757
72567610

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L 
NL regression using US STRIPS data, linear
3
09:24 Thursday, April 4, 2002
The NLIN Procedure
Iterative Phase
Dependent Variable price
Method: Gauss-Newton

Iter

beta0

beta1

Sum of
Squares

0
1
2
3
4

0.0600
0.0534
0.0533
0.0533
0.0533

0
0.000705
0.000725
0.000725
0.000725

503.9
109.2
108.6
108.6
108.6

NOTE: Convergence criterion met.

( Q^$   D & $ $$S Qe b & Q-$B-'
Bw !c
'yw 


B


Estimation Summary
Method
Iterations
R
PPC(beta1)
RPC(beta1)
Object
Objective
Observations Read
Observations Used
Observations Missing

Gauss-Newton
4
1.212E-6
6.175E-7
0.000023
2.187E-9
108.6365
236
236
0

NOTE: An intercept was not specified for this model.

 f g=Hh'ji

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DF

Sum of
Squares

Mean
Square

Regression
Residual
Uncorrected Total

2
234
236

670317
108.6
670426

335159
0.4643

Corrected Total

235

141321

Source

F Value

Approx
Pr > F

721922

<.0001

NL regression using US STRIPS data, linear

4
09:24 Thursday, April 4, 2002
The NLIN Procedure

Parameter

Estimate

Approx
Std Error

beta0
beta1

0.0533
0.000725

0.000230
0.000026

Approximate 95%
Confidence Limits
0.0529
0.000675

0.0538
0.000775

Approximate Correlation Matrix

beta0
beta1
beta0
beta1

1.0000000
-0.9269206

-0.9269206
1.0000000

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options linesize=64;
data USStrips ;
infile c:\courses\or473\data\strips.dat ;
input today maturity price time2mat;
time2mat = time2mat/365 ;
run ;
title NL regression using US Strips bond, quadratic;
proc nlin ;
parm beta0 = .02 to .09 by .005 beta1 = -.01 to .01 by .005
beta2 = -.01 to .01 by .005 ;
model price = 100*exp(-beta0*time2mat - (beta1*(time2mat)**2)/2
- (beta2*(time2mat)**3)/3) ;
run ;

^Jd
wB2F'
X r - $ $H* B Q '!B 6 r -BF)
$6

w $
B]w#$)w&

NL regression using US Strips bond, quadratic

6
11:01 Thursday, April 4, 2002
The NLIN Procedure
Iterative Phase
Dependent Variable price
Method: Gauss-Newton

Iter

beta0

beta1

beta2

Sum of
Squares

0
1
2
3

0.0600
0.0471
0.0474
0.0474

0
0.00249
0.00245
0.00245

0
-0.00008
-0.00008
-0.00008

503.9
11.3192
11.1848
11.1848

NOTE: Convergence criterion met.

Estimation Summary
Method
Iterations
R

Gauss-Newton
3
5.51E-6

 f g=Hh'ji

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PPC(beta2)
RPC(beta2)
Object
Objective
Observations Read
Observations Used
Observations Missing

1.48E-6
0.00011
2.683E-7
11.18479
236
236
0

NOTE: An intercept was not specified for this model.

DF

Sum of
Squares

Mean
Square

Regression
Residual
Uncorrected Total

3
233
236

670415
11.1848
670426

223472
0.0480

Corrected Total

235

141321

Source

F Value

Approx
Pr > F

4655328

<.0001

NL regression using US Strips bond, quadratic

7
11:01 Thursday, April 4, 2002
The NLIN Procedure

Parameter

Estimate

Approx
Std Error

beta0
beta1
beta2

0.0474
0.00245
-0.00008

0.000151
0.000039
1.706E-6

Approximate 95%
Confidence Limits
0.0471
0.00237
-0.00008

Approximate Correlation Matrix

beta0
beta1
beta0
beta1
beta2

1.0000000
-0.9486321
0.8748783

-0.9486321
1.0000000
-0.9783902

0.0477
0.00252
-0.00007

beta2
0.8748783
-0.9783902
1.0000000

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5 knots
10 knots
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55  

Singapore

0.5

0.5
return

return

Hong Kong

0
0.5

0
0.5

50

100
Brazil

150

0.5

0.5
return

return

0
0.5
1

50

100
Argentina

150

50

100
Germany

150

50

100
France

150

50

100

150

100

150

0
0.5

50

100

150

0.5

0.5
return

return

UK

0
0.5
0

50

100
Canada

150

0.5

0.5

0
0.5
1

0
0.5

50

100
Japan

150

US

0.5

0.5
return

return

0
0.5

return

return

0
0.5
1

0
0.5

50

100

150

50

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0.1

0.1

0
0.1

0
0.1

10
15
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0.2

20

0.2

0.2

0.1

0.1
corr

corr

0.2

0
0.1
0.2

10
15
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20

10
15
Germany

20

10
15
France

20

10

15

20

15

20

0
0.1

10

15

0.2

20

0.2

0.2

0.1

0.1
corr

corr

UK

0
0.1
0

10
15
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0.2

20

0.2

0.2

0.1

0.1

0
0.1
0.2

0
0.1

10
15
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0.2

20

US

0.2

0.2

0.1

0.1
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corr

0
0.1

corr

corr

0.2

0
0.1
0.2

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0.2

corr

corr

Hong Kong

0
0.1

10

15

20

0.2

10

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0
Brazil

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.2

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.2

0
0.05
Canada

0.1

0.1

0.2

0.1

0
Argentina

0.5

0
Germany

0.15

0.2

0.1

Probability

0.5

0.1

0
France

0.1

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003

0.1

0.1

Probability
0.1

0.2

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003

Japan
0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.2

0.1

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003

0.4

Probability

Probability

Probability

Probability

0.8 0.6 0.4 0.2

UK

0.1 0.05

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003

0.2

Probability

Probability

0.2

:<]O^

Singapore

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003

Probability

Probability

Hong Kong

0
US

0.1

0.05

0.2

0.997
0.99
0.98
0.95
0.90
0.75
0.50
0.25
0.10
0.05
0.02
0.01
0.003
0.1

0.05

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0.1

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55  

0.025

0.025

0.02

0.015

0
0

0.02

0.015

0.01

0.005

expected return (P)

0.03

expected return (P)

0.03

achieved
optimal

0.01

0.005
0
0

0.05
0.1
standard deviation of return (P)

0.025

0.025

0.02

0.015

achieved
optimal

0.01

0.005
0
0

0.05
0.1
standard deviation of return (P)

0.025

0.02

0.015

expected return (P)

0.025

expected return (P)

0.03

achieved
optimal
0.05
0.1
standard deviation of return (P)

0.02

0.015

0.01

0
0

0.05
0.1
standard deviation of return (P)

0.02

0.03

0.005

achieved
optimal

0.015

0.01

0
0

expected return (P)

0.03

expected return (P)

0.03

0.005

achieved
optimal
0.05
0.1
standard deviation of return (P)

0.01

0.005
0
0

achieved
optimal
0.05
0.1
standard deviation of return (P)

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55  

expected return ( )

0.03
0.025

achieved
optimal
eff. frontier

0.02
0.015
0.01
0.03

0.035

0.04
0.045
0.05
0.055
standard deviation of return (P)

0.06

frequency

150

100

50

0
0.01

0.005

0.005

P

0.01

0.015

0.02

P,opt

frequency

80
60
40
20
0
6

.012
P

4
3

x 10

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55  

0.03

expected return (P)

0.025

achieved
optimal
eff. frontier

0.02

0.015

0.01
0.03

0.035

0.04
0.045
0.05
standard deviation of return (P)

0.055

80

frequency

60

40

20

0
0

0.5

1.5
2
P P,opt

2.5

3.5
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0.05
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frequency

150

100

50

0
0.01

0.005

0.005
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0.01

0.015

0.02

frequency

80
60
40
20
0
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0.02

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0.05
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100

frequency

80
60
40
20
0
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0.005

0.005
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0.01

0.015

0.02

frequency

80
60
40
20
0
6

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4
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0.25

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0.2
0.15
0.1
0.05
0
1970

1975

1980

1985

1990

1985

1990

Year

0.03

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0.02
0.01
0
0.01
0.02
0.03
1970

1975

1980
Year

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0.01
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0.01
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0.03

0.05

0.1

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0.2

0.25

0.1

0.15
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0.2

0.25

x 10

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0.05

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fit1 = linregress(predictors,diff) ;
fit2 = linregress(predictors, (diff - fit1.yhat).2 ) ;
rate_grid = linspace(min(rate),max(rate),1000) ;
predictors_grid = [ones(1000,1) rate_grid
...
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(rate_grid - .12).*(rate_grid > .12) ...
(rate_grid - .16).*(rate_grid > .16) ...
(rate_grid - .2).*(rate_grid > .2) ] ;
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set(p1(2),linewidth,8) ;
set(p1(2),color,red) ;
set(gca,fontsize,16) ;
xlabel(Euro rate,fontsize,16) ;
ylabel(volatility2,fontsize,16) ;

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8
10
12
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0

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0.15
Euro rate

0.2

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options linesize = 64 ;
data EuroRate ;
infile c:\courses\or473\data\euro_rates.dat ;
input month day year eu01 eu03 eu06;
eu01 = eu01/100 ;
diff=dif(eu01) ;
rate = lag(eu01) ;
rate2 = rate**2 ;
plus1 = ((rate - .08)**2) * (rate > .08) ;
plus2 = ((rate - .12)**2) * (rate > .12) ;
plus3 = ((rate - .16)**2) * (rate > .16) ;
plus3 = ((rate - .2)**2) * (rate > .2) ;
run ;
title One Month Euro dollar deposit rates ;
proc reg ;
model diff = rate rate2 plus1 plus2 plus3 plus4 / method=cp;
run ;

l
u

Lr e
One Month Euro dollar deposit rates
1
09:05 Thursday, April 25, 2002
The REG Procedure
Model: MODEL1
Dependent Variable: diff
C(p) Selection Method

Number in
Model
2
2
1
2
1
2
2

C(p)

R-Square

-0.5962
-0.1048
0.0526
0.3649
0.6221
0.7035
1.0446

0.0172
0.0168
0.0150
0.0164
0.0145
0.0161
0.0158

Variables in Model
plus3
plus2
plus3
plus1
plus4
rate2
plus2

plus4
plus4
plus4
plus4
plus3

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1.3833
3
1.4036
2
1.6279
3
1.8535
3
1.8671
3
1.8827
(output deleted)

0.0157
0.0173
0.0173
0.0172
0.0172
0.0153
0.0168
0.0168
0.0168

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rate plus4
rate plus3 plus4
rate2 plus3 plus4
plus1 plus3 plus4
plus2 plus3 plus4
plus1 plus3
plus1 plus2 plus4
rate plus2 plus4
rate2 plus2 plus4

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(data step omitted but same as before)

proc reg ;
model diff = plus3 plus4;
output out=EuroOut p = yhat ;
run ;
proc gplot ;
plot yhat*rate ;
run ;

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One Month Euro dollar deposit rates
1
09:05 Thursday, April 25, 2002
The REG Procedure
Model: MODEL1
Dependent Variable: diff
Analysis of Variance

Source
Model
Error
Corrected Total

DF

Sum of
Squares

Mean
Square

2
1196
1198

0.00035658
0.02042
0.02078

0.00017829
0.00001707

Analysis of Variance

F Value
10.44

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Source

Pr > F

Model
Error
Corrected Total

<.0001

Root MSE
Dependent Mean
Coeff Var

0.00413
-0.00002611
-15829

R-Square
Adj R-Sq

0.0172
0.0155

Parameter Estimates

Variable

DF

Parameter
Estimate

Standard
Error

t Value

Pr > |t|

Intercept
plus3
plus4

1
1
1

0.00002733
-1.45311
-13.51699

0.00012091
0.80879
8.29287

0.23
-1.80
-1.63

0.8212
0.0726
0.1034

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3_

(Omitted statements where the

data are read in and rate2 and plus functions
created as in earlier programs. The SAS data
set that is created is called EuroRate)
title One Month Euro dollar deposit rates ;
title2 Preliminary fit to estimation drift function ;
proc reg ;
model diff = plus3 plus4 ;
output out=EuroRate p=yhat r=resid ;
run ;
comment The next step creates the squared residuals ;
data EuroRate ;
comment Second data step ;
set EuroRate ;
resid2 = resid*resid ;
title2 Estimation of volatility using squared residuals ;
proc reg ;
model resid2 = rate rate2 plus1 plus2 plus3 plus4 / method=cp ;
run ;

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The REG Procedure
Model: MODEL1
Dependent Variable: resid2
C(p) Selection Method
Number in
Model
2
3
3
3
3
4
3
2
4
3

C(p)

R-Square

2.4838
3.1000
3.3554
4.1612
4.4328
4.4790
4.8465
4.8578
4.8907
4.9479

0.1220
0.1230
0.1228
0.1222
0.1220
0.1234
0.1217
0.1202
0.1231
0.1216

Variables in Model
plus1 plus2
rate plus1 plus2
rate2 plus1 plus2
plus1 plus2 plus3
plus1 plus2 plus4
rate rate2 plus1 plus2
rate plus1 plus3
rate2 plus1
plus1 plus2 plus3 plus4
rate2 plus1 plus3

7) M)qEOx
4
4
2
2

  EB 

4.9629
5.0109
5.0932
5.1177

0.1231
0.1231
0.1201
0.1200

rate
rate
rate
rate

plus1 plus2 plus4

plus1 plus2 plus3
plus1
rate2

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proc reg ;
model resid2 = rate plus1 plus2 ;
output out=EuroRate p=yhat_vol ;
run ;
proc gplot ;
plot yhat_vol*rate ;
run ;

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The REG Procedure

Model: MODEL1
Dependent Variable: resid2
Analysis of Variance

Source
Model
Error
Corrected Total

DF

Sum of
Squares

Mean
Square

3
1195
1198

5.37898E-7
0.00000384
0.00000437

1.792993E-7
3.209729E-9

F Value

Analysis of Variance
Source

Pr > F

Model
Error
Corrected Total

<.0001

Root MSE
Dependent Mean
Coeff Var

0.00005665
0.00001703
332.64060

R-Square
Adj R-Sq

0.1230
0.1208

55.86

7)5

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Parameter Estimates

Variable
Intercept
rate
plus1
plus2

DF

Parameter
Estimate

Standard
Error

t Value

Pr > |t|

1
1
1
1

2.659709E-8
0.00011230
0.01213
-0.01360

0.00000682
0.00009543
0.00330
0.00680

0.00
1.18
3.67
-2.00

0.9969
0.2395
0.0003
0.0458

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Euro rate

0.2

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Euro rate

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Euro rate

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(code to manipulate data omitted)
fit = PsplineDR03(rate,diff,struct(nknots,25) ) ;
subplot(2,1,1) ;

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(code omitted that enhances the plot)
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rate,fit.ulimitder,--, ...
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[0 .25], [0 0]) ;
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options linesize = 64 ;
data EuroRate ;
infile c:\courses\or473\data\euro_rates.dat ;
input month day year eu01 eu03 eu06;
eu01 = eu01/100 ;
diff=dif(eu01) ;
rate = lag(eu01) ;
lagdiff = lag(diff) ;
rate2 = rate**2 ;
lagdiff2 = lagdiff**2 ;
plus1 = ((rate - .08)**2) * (rate > .08) ;
plus2 = ((rate - .12)**2) * (rate > .12) ;
plus3 = ((rate - .16)**2) * (rate > .16) ;
plus4 = ((rate - .2)**2) * (rate > .2) ;
plusLD1 = ((lagdiff - 0)**2) * (lagdiff > 0) ;
run ;
title One Month Euro dollar deposit rates ;
title2 Additive Model ;
proc reg ;
model diff = rate rate2 plus1 plus2 plus3 plus4
lagdiff lagdiff2 plusLD1 / method=cp ;
run ;

vtawt q ~| y t} q
~ | q u=o
One Month Euro dollar deposit rates
1
Additive Model
18:01 Thursday, April 25, 2002
The REG Procedure
Model: MODEL1
Dependent Variable: diff
C(p) Selection Method

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Number in
Model
4
3
4
3
4
4
5
4
5
5
5
5

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R-Square

0.8096
1.1730
1.1833
1.3698
1.4818
2.2736
2.4572
2.5082
2.6407
2.6446
2.6669
2.6790

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0.0603
0.0617
0.0611
0.0626
0.0609
0.0624
0.0624
0.0624
0.0624

 1

}*}

Variables in Model
plus2 plus3 lagdiff plusLD1
plus4 lagdiff plusLD1
plus3 plus4 lagdiff plusLD1
plus3 lagdiff plusLD1
plus1 plus3 lagdiff plusLD1
plus2 plus4 lagdiff plusLD1
plus2 plus3 plus4 lagdiff plusLD1
rate2 plus3 lagdiff plusLD1
rate2 plus2 plus3 lagdiff plusLD1
plus1 plus3 plus4 lagdiff plusLD1
rate plus2 plus3 lagdiff plusLD1
plus2 plus3 lagdiff lagdiff2
plusLD1

(output omitted)

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proc reg ;
model diff = plus4 lagdiff plusLD1;
output out=EuroOut p =yhat ;
run ;
The REG Procedure
Model: MODEL1
Dependent Variable: diff
Analysis of Variance

Source
Model
Error
Corrected Total

DF

Sum of
Squares

Mean
Square

3
1194
1197

0.00125
0.01951
0.02077

0.00041818
0.00001634

F Value
25.59

Analysis of Variance
Source

Pr > F

Model

<.0001

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Corrected Total

Root MSE
Dependent Mean
Coeff Var

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-0.00002346
-17235

R-Square
Adj R-Sq

0.0604
0.0580

Parameter Estimates

Variable

DF

Parameter
Estimate

Standard
Error

t Value

Pr > |t|

Intercept
plus4
lagdiff
plusLD1

1
1
1
1

0.00013987
-19.96184
0.27061
-16.79625

0.00012053
5.96808
0.03544
3.63164

1.16
-3.34
7.64
-4.62

0.2461
0.0008
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options linesize = 64 ;
data EuroRate ;
infile c:\courses\or473\data\euro_rates.dat ;
input month day year eu01 eu03 eu06;
eu01 = eu01/100 ;
diff=dif(eu01) ;
rate = lag(eu01) ;
lagdiff = lag(diff) ;
plus4 = ((rate - .2)**2) * (rate > .2) ;
plusLD1 = ((lagdiff - 0)**2) * (lagdiff > 0) ;
mu1= -19.96184 * plus4 ;
mu2 = .27061*lagdiff - 16.79625 * plusLD1 ;
run ;
title One Month Euro dollar deposit rates ;
proc gplot ;
plot mu1*rate ;
run ;

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