Quants AR1

[Frankliving]

What does the 1 in AR 1 stand for ?

[ro424]

My understanding is that it means a first order process, and so it’s the previous value that predicts the current value.

[S2000magician]

Yes, the “1” in AR(1) means that the model for this period’s value depends only on the value from the last period. An AR(2) model would use the value from the last period and the value from the period before that (i.e., the last two values), an AR(3) model would use the last three values, and so on.

[Frankliving]

@S2000magician

Yes, the “1” in AR(1) means that the model for this period’s value depends only on the value from the last period. An AR(2) model would use the value from the last period and the value from the period before that (i.e., the last two values), an AR(3) model would use the last three values, and so on.

Thanks a lot mate - makes so much sense now. They should get you to re-write the schweser books lol

[S2000magician]

@Frankliving

@S2000magician

Yes, the “1” in AR(1) means that the model for this period’s value depends only on the value from the last period. An AR(2) model would use the value from the last period and the value from the period before that (i.e., the last two values), an AR(3) model would use the last three values, and so on.

Thanks a lot mate - makes so much sense now.

Glad to hear it!

@Frankliving

They should get you to re-write the schweser books lol

Send an e-mail to Tim Smaby (he just became head of the CFA curriculum at Schweser) and tell him.

[BlueTrin]

For information, AR§ means autoregressive of order p, which means exactly what the other people said: p is the level of autoregression which is in the equation of the model the number of lags you are using for your forecast.