Question 1 Describe briefly the three hypothesis testing procedures that are available under maximum likelihood estimation....

Question 1

Describe briefly the three hypothesis testing procedures that are available under maximum likelihood estimation. Which is likely to be calculated in practice and why?
What stylized fact of financial data cannot be explained using linear trend models? ( 10 marks)
Which of these features can be modelled using a GARCH (1,1) process? ( 10 marks)

Expert Solution

As per policy we have to answer first question

Rahul Sunny answered 6 months ago

(a) Discuss briefly the principles behind maximum likelihood. (b) Describe briefly the three hypothesis testing procedures...

(a) Discuss briefly the principles behind maximum likelihood. (b) Describe briefly the three hypothesis testing procedures that are available under maximum likelihood estimation. Which is likely to be the easiest to calculate in practice, and why? (c) OLS and maximum likelihood are used to estimate the parameters of a standard linear regression model. Will they give the same estimates? Explain your answer.

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