SOA Exam SRM Sample Question 4

Study guide: Exam SRM

You are given:

i) The random walk model

$y_t = y_0 + c_1 + c_2 + \cdots + c_t$

where $c_t,\ t = 0, 1, 2, \ldots T$ denote observations from a white noise process.

ii) The following ten observed values of $y_t$ .

$t$	1	2	3	4	5	6	7	8	9	10
$y_t$	2	5	10	13	18	20	24	25	27	30

iii) $y_0 = 0$

Calculate the standard error of the 9 step-ahead forecast, $\hat{y}_{19}$ .

Concepts tested