Statistics for Finance

Chapter 4

Linear time series models

4.1 Introduction

In this chapter we introduce the concepts of linear stochastic processes and linear time series models. The description is rather condensed and far from complete. The justification for the non-completeness is that a lot of other books deal with the subjects, while the main motivation for including this chapter is for references as well as for a brief overview. For a more detailed treatment of linear time series models we refer to Box and Jenkins [1976], Brockwell and Davis [1991], Shumway [1988] and Madsen [2007].

Most of the attention is devoted to an introduction of linear time series models and a discussion of their characteristics and limitations. However, since the prediction concept is ...