One of the well-known class of models that involve a simple difference equation are models of mean reversion. These models typically take the form

yt+1 - yt = -a(yt - μ)where 0 < a< 1

In the equation above μ is the mean of yt.

a) Provide the intuitive explanation for the above equation.

b) Show homogenous, particular and then general solution for the difference equation.

c) Setting t=0 show the solution to the mean-reversion model.

d) Analyze the dynamic path of this model.

Posted Date: 3/23/2013 3:31:25 AM | Location : United States

Ask an Expert

Related Discussions:- Analyze the dynamic path - difference equation, Assignment Help, Ask Question on Analyze the dynamic path - difference equation, Get Answer, Expert's Help, Analyze the dynamic path - difference equation Discussions

Write discussion on Analyze the dynamic path - difference equation
Your posts are moderated

Write your message here..

Related Questions

Probability, Define sample space Define sample space

Probability, what is a sample space diagram what is a sample space diagram

Correlation and regression, Correlation and Regression CORRELATION is ... Correlation and Regression CORRELATION is an important statistical concept which refers to association or interrelationship among variables. The reasons of studying correla

Statistic, Suppose that the probability of your favorite baseball player ge... Suppose that the probability of your favorite baseball player getting a hit at bat is 0.45. Assume that each at bat is independent. What is the probability that he bats eight times

First order linear differential equation, Newton's Second Law of motion, wh... Newton's Second Law of motion, which recall from the earlier section that can be written as: m(dv/dt) = F (t,v) Here F(t,v) is the sum of forces which act on the object and m

Logistic marketing, supply chain management supply chain management

Some simple equation, divide 50 into two parts such that if 6 is subtracted... divide 50 into two parts such that if 6 is subtracted from one part and 12 is added to the second part,we get the same number?

What is the probability of choosing a red ball, Q. What is the probability ... Q. What is the probability of choosing a red ball? Ans. A box contains a red, blue and white ball. Two are drawn with replacement. (This means that one ball is selected, i

Error analysis: describle and correct the error in plotting, to plot (5,-4)... to plot (5,-4), start at (0,0) and move 5 units left and 4 units down

Expressions, how do you solve expressions how do you solve expressions