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). | Financial Risk Manager Part 1 Quiz - LeetQuiz
Financial Risk Manager Part 1
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Answer: 0.25
From the Yule-Walker equation,
$$
\rho_t = \varphi^t = 0.25^1
$$
The first period autocorrelation = 0.25
Author: Nikitesh Somanthe
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The first-order autoregressive AR(1) is defined as:
yt=εt+0.25yt−1
Using the Yule-Walker equation, compute the autocorrelation of the AR(1).
