CAS Exam MAS-I Fall 2019, Question 42
Study guide: Exam MAS-II
An actuary uses four separate models to fit a time series. All models have mean \mu_x = 0.
- Model 1: A random walk model with no drift
- Model 2: A stationary autoregressive process of order 1 with a root of the characteristic equation of the backwards shift operator equal to 3
- Model 3: A stationary autoregressive process of order 1 with a root of the characteristic equation of the backwards shift operator equal to 2
- Model 4: A non-stationary autoregressive process of order 1 with a root of the characteristic equation of the backwards shift operator greater than 0
The most recent values of x at time t, x_t, are given in the table below:
| t | x_t |
|---|---|
| 4 | 2 |
| 5 | 1 |
| 6 | 4 |
Determine which model will result in the smallest predicted values of x_7.
- A) Model 1
- B) Model 2
- C) Model 3
- D) Model 4
- E) There is not enough information given to determine the correct answer.
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