Financial Risk Manager Part 1

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The first-order autoregressive AR(1) is defined as:

y_t = \varepsilon_t + 0.25y_{t-1}

Using the Yule-Walker equation, compute the autocorrelation of the AR(1).

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NNikitesh

Last updated: February 2, 2026 at 10:22

0.50

0.25

0.0625

None

Explanation:

From the Yule-Walker equation,

\rho_t = \varphi^t = 0.25^1

The first period autocorrelation = 0.25

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