Problems:

1. X & Y are independent. Fit a model & forecast value of Z by your wish.
2. Forecast for the given values of X: typical univariate forecast
3. Same as of 2.
4. Simulate ARMA(p,q) processes

Deadline: Today
For 100 AR(1) processes, if I plot

Sim 1 Sim2 Sim3 …………………………. Sim100

AutoLag1 .. .. .. ..

Avg. autocorrelation of 1st lag of 100 observations will give a fair idea of what should a typical avg.
should be.

The theoretical variance should be near to 1/100 i.e. standard deviation should be near to 1/10.

For MA process,

Xt = Et – bEt-1

 Estimate b so that stationarity & invertibility condition is satisfied

 Generate random numbers of Et & Et-1 and generate series of Xt

Plot the series (line diagram)

Transformation? (mostly log transformation)

X1 y= (xlabmda -1)/lambda if lambda not equal to 0

X2 = log(x) if lambda=0 Box-Cox Transformation
X3
.
.
.
 All examples that Makridarki has discussed about transformations come under Box Cox.
 Examination of autocorrelation & partial autocorrelation and from that identify set of models
 Estimation
 Diagnostic checking( check whether residuals are white noise or not)

Series Forecasts Residuals

X1 F1 R1
X2 F2 R2
X3 F3 R3
. . .
. . .

Try to detect outliers first and structural change in residuals

Try to know what happened on those times (in outliers)
Can be promotions, new arrivals of competitors, catastrophic effects.
Do any of these variables need forecasting?
 ARMA or ARIMA model can be very easily generalized to ARMA-X models
Where we add intervention dummies
Intervention dummies reflecting one period shock.
Intervention dummies reflecting permanent change.

Cross-correlations for related variables(lead as well as lag)

Stepwise regression
Forward
Backward: Preferable
Z(-1 to -24)
Drop insignificant variables one by one.

Autoregressive Distributed Models

i)        Project Finance vis-a-vis Balance Sheet Finance

 
ii)       Need and rationale for Public Private Partnership in Financing Infrastructure,
Concession Agreement
 
iii)      Issues in design of Organizational structure in Project Finance
 
iv)       Issues in design of Contractual Structure in Project Finance to identify, assess,
allocate, mitigate and pricing of the risks.
 
v)        Issues in design of Financial Structure, Creadit Enhancement and financial
analysis from the lenders' perspective
 
vi)        Project Evaluation from the Sponsors' Perspective (Project IRR, Equity IRR,
QMV, Real Options Analysis)
 
vii)       Social Cost-benefit analysis
 
viii)      Loan Syndication Strategies
 
ix)        Estimation of Cost of Equity for Investments in emerging economies
 
x)       Deal Structuring: Risk-Return Trade Off (Holistic view)