FARMACOV Call :: SAS/IML(R) 12.1 User's Guide

FARMACOV Call

CALL FARMACOV (cov, d <*>, phi <*>, theta <*>, sigma <*>, p <*>, q <*>, lag ) ;

The FARMACOV subroutine computes the autocovariance function for an autoregressive fractionally integrated moving average (ARFIMA) model of the form ARFIMA().

The input arguments to the FARMACOV subroutine are as follows:

d

specifies a fractional differencing order. The value of must be in the open interval excluding zero. This input is required.

phi

specifies an -dimensional vector that contains the autoregressive coefficients, where is the number of the elements in the subset of the AR order. The default is zero. All the roots of $\phi (B)=0$ should be greater than one in absolute value, where $\phi (B)$ is the finite-order matrix polynomial in the backshift operator , such that $B^ j y_{t}=y_{t-j}$ .

theta

specifies an -dimensional vector that contains the moving average coefficients, where is the number of the elements in the subset of the MA order. The default is zero.

p

specifies the subset of the AR order. The quantity is defined as the number of elements of phi.

If you do not specify p, the default subset is p $=\{ 1,2,\ldots ,m_ p\}$ .

For example, consider phi=0.5.

If you specify p=1 (the default), the FARMACOV subroutine computes the theoretical autocovariance function of an ARFIMA() process as $y_ t = 0.5~ y_{t-1} + \epsilon _ t.$

If you specify p=2, the FARMACOV subroutine computes the autocovariance function of an ARFIMA() process as $y_ t = 0.5~ y_{t-2} + \epsilon _ t.$

q

specifies the subset of the MA order. The quantity is defined as the number of elements of theta.

If you do not specify q, The default subset is q $=\{ 1,2,\ldots ,m_ q\}$ .

The usage of q is the same as that of p.

lag

specifies the length of lags, which must be a positive number. The default is lag.

The FARMACOV subroutine returns the following value:

cov: is a lag vector that contains the autocovariance function of an ARFIMA() process.

As an example, consider the following ARFIMA() process:

$(1-0.5B)(1-B)^{0.3}y_ t = (1+0.1B){\epsilon }_ t$

In this process, $\epsilon _ t \sim NID(0, 1.2)$ . The following statements compute the autocovariance of this process:

d = 0.3;
phi = 0.5;
theta = -0.1;
sigma = 1.2;
call farmacov(cov, d, phi, theta, sigma) lag=5;
print cov;

Figure 23.113: Autocovariance of an ARFIMA Process

cov
4.2493033
3.5806774
2.9152846
2.4381017
2.1068697
1.8743199

For $d\in (-0.5,0.5)\backslash \{ 0\}$ , the series $y_{t}$ represented as $(1-B)^ dy_{t} = {\epsilon }_ t$ is a stationary and invertible ARFIMA() process with the autocovariance function

$\gamma _ k = {\mbox E}(y_{t}y_{t-k}) = { {(-1)^ k \Gamma (-2d+1)} \over {\Gamma (k-d+1)\Gamma (-k-d+1) }}$

and the autocorrelation function

$\rho _ k = {\gamma _ k \over \gamma _0} = {{ \Gamma (-d+1)\Gamma (k+d)} \over {\Gamma (d)\Gamma (k-d+1) }} \sim { \Gamma (-d+1) \over {\Gamma (d)}} k^{2d-1}, ~ ~ k\rightarrow \infty$

Notice that $\rho _ k$ decays hyperbolically as the lag increases, rather than showing the exponential decay of the autocorrelation function of a stationary ARMA() process.

For $d\in (0.5,0.5)\backslash \{ 0\}$ , the series $y_{t}$ is a stationary and invertible ARFIMA() process represented as

$\phi (B)(1-B)^ dy_ t = \theta (B){\epsilon }_ t$

where $\phi (B)=1-\phi _1B-\phi _2B^2 - \ldots - \phi _ pB^ p$ and $\theta (B)=1-\theta _1B-\theta _2B^2 - \ldots - \theta _ qB^ q$ and ${\epsilon }_ t$ is a white noise process; all the roots of the characteristic AR and MA polynomial lie outside the unit circle.

Let $x_ t = \theta (B)^{-1}\phi (B)y_ t$ , so that follows an ARFIMA() process; let , so that follows an ARMA() process; let $\gamma _ k^ x$ be the autocovariance function of $\{ x_ t\}$ and $\gamma _ k^ z$ be the autocovariance function of $\{ z_ t\}$ .

Then the autocovariance function of $\{ y_ t\}$ is as follows:

$\gamma _ k = \sum _{j=-\infty }^{j=\infty } \gamma _ j^ z\gamma _{k-j}^ x$

The explicit form of the autocovariance function of $\{ y_ t\}$ is given by Sowell (1992).