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  3. Intro to Computational Finance with R

Exercise

A different MA(1) model

Still consider the MA(1) model $$Y_t = 0.05 + \epsilon_t + \theta \epsilon_{t-1}$$

with \(|\theta| < 0\) and \(\epsilon_t ~ iid\) \(N(0,(0.1)^2)\).

Instructions

100 XP

Now assume that \(\theta = 0.9\) instead of \(\theta = 0.5\). Rewrite the code on the right such that it simulates data from the correct model and displays the three graphs correctly.