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STATS 330 Advanced Statistical Modelling

Questions: Notes: (i) Write your assignment using R Markdown. Knit your report to either a Word or PDF document.   (ii) Create a section for each question. Include all relevant code and out ...

Course

STATS330

Type

Course Work

Subject

Statistics

University

The University of Auckland

AFE7501-B Quantitative Methods in Finance

Question

Answered

Question:

Instructions

There are four questions each worth 25 marks. Answer all four questions. In the light of the emergency coronavirus measures this assignment will constitute 100% of the marks awarded for this module and replaces the final exam.

Question 1 [Regression]

The data in Table 1 below links the stopping distance (in metres) of a car y to the speed of a car x (speed measured in mph).

Speed (mph) x

Stopping distance (metres) y

20

12

30

23

40

36

50

53

60

73

70

96

Table 1: Data for Question 1

(a) Enter this data into R and list the commands used

(b) Fit a suitable regression model to this data

(c) Using the model fitted in part (b) estimate the stopping distance for speeds of 10, 80, 90 and 100 mph.

(d) For the estimates in part (c) use R to construct a 95% prediction interval for each of these four speeds: 10, 80, 90 and 100mph. What is the interpretation of the prediction intervals in this case?

(e) How is the process of choosing a regression model in part (b) different to other regression examples you might see in accounting and finance?

Question 2 [Probability regression]

(a) List the assumptions underpinning the classical regression model.

The data in Table 2 below link the probability Y that a sales voucher is redeemed compared to the size of the discount X offered.

Discount X

Sample size

Number of coupons redeemed

Probability of redemption Y

5

500

100

0.2

7

500

122

0.224

9

500

147

0.294

11

500

176

0.352

13

500

211

0.422

15

500

244

0.488

17

500

277

0.554

19

500

310

0.620

21

500

343

0.686

23

500

372

0.744

25

500

391

0.782

Table 2: Data for Question 2

(b) Enter the data in Table 2 into R and list the commands used.

(c) Fit the regression model .

(d) What is the regression model in part (c) called?

(e) Show that the linear regression model in part (c) cannot satisfy the classical linear regression assumptions listed in part (a).

(f) If X is equal to 31.63 estimate the probability that a voucher is redeemed in each case.

(g) Suggest a better model than the model in part (c). Use this model to re-estimate the probability in part (f).

Question 3 [Financial price data]

(a) Download price data for a financial asset of your choice. [Hint: possibilities here include stock price data from yahoo finance or cryptocurrency data from coinmarketcap.com]. Explain why the asset or index you have chosen is interesting and give the precise dates for which you have collected the data.

(b) Download the data into R and calculate the log-returns. List the R commands used.

(c) Fit an ARCH(1) model to the log-returns in part (b) and test for the presence of an ARCH effect within this data. List the R commands and R packages used.

(c) Fit a GARCH(1, 1) model to the log-returns in part (b) and test for the presence of ARCH and GARCH effects within this data. List the R commands and R packages used.

(e) List the stylised empirical facts of financial time series.

(f) [Independent research required]. Explain how more advanced family GARCH models can be fitted to the data in part (b) using R.

Question 4 [Basic hypothesis tests]

The data in Table 3 below lists the corporation tax rates for selected EU and non-EU countries.

European Union Countries

Non-European Union Countries

25, 33.99, 10, 20, 12.5, 19, 23.5, 20, 20, 33.3, 30.175, 26, 10, 12.5, 27.5, 15, 15, 28.59, 35, 20, 27, 19, 12.5, 16, 15, 17, 30, 22, 21

10, 24, 10, 15, 20, 12.5, 10, 9, 20, 15, 25, 20, 23

Table 3: Data on Corporation Tax rates for Question 4

(a) Read this data into R and list the R commands used.

(b) Test for a difference in the mean corporation tax rate between EU and non-EU countries.

(c) Test for a difference in the variance of the corporation tax rate between EU and non-EU countries.

(d) Based on the findings in part (c-d) what are the implications of Brexit upon the rate of UK corporation tax?

(e) What implications might the current coronavirus pandemic have upon the data in Table 3?

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STATS 330 Advanced Statistical Modelling

Questions: Notes: (i) Write your assignment using R Markdown. Knit your report to either a Word or PDF document.   (ii) Create a section for each question. Include all relevant code and output in the final document.   (iii) Marks may be deducted for poor style. Please keep your cod ...

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