Auto regressive processes

AR processes

Given a zero mean white noise $e(t) \sim WN(0, \lambda^2)$ then the stochastic process $y(t)$ is an auto regressive process if $y(t)$ is stationary and satisfies the recursive equation: $$y(t)=a_1y(t-1)+a_2y(t-2)+...+a_ny(t-n)+e(t)$$ which is a regression over the past values of the process itself.

$a_1,...a_n$ are real parameters and $n$ is the order of the process.

The recursive equation may admit multiple solutions, which is the one that gives th auto regressive process?

Steady state solution

We define $Y(t_0)=(y(t_0-1),y(t_0-2),...,y(t_0-n))$ as the initial values needed to construct all future values of the process using the recursive equation.

The steady state solution is obtained imposing the initial value to zero: $Y(t_0)=0=(0,...,0)$ and then taking the limit for $t_0\to-\infty$: $$\lim_{t_0 \to -\infty}{y_{t_0}(t)}=y(t)$$ which is the steady state solution (i.e. the AR process).

Example: AR(1)

Consider the following process: $$y(t)=ay(t-1)+e(t) \text{ where } e(t) \sim WN(0, \lambda^2)$$

If we explicit $y(t-1)=ay(t-2)+e(t-1)$ then: $$y(t)=e(t)+ae(t-1)+a^2y(t-2)$$

We can repeat the recursion util we reach: $$y(t)=e(t)+ae(t-1)+a^2y(t-2)+...+a^{t-t_0}e(t_0)+a^{t-t_0+1}y(t_0-1)$$

With the steady stete initialization: $Y(t_0)=y(t_0-1)=0$ we obtain: $$y(t)=e(t)+ae(t-1)+a^2y(t-2)+...+a^{t-t_0}e(t_0)$$

If we then take the limit: $$ y(t)=\lim_{t_0\to-\infty}{y_{t_0}(t)}=\newline =\lim_{t_0\to-\infty}{e(t)+ae(t-1)+a^2y(t-2)+...+a^{t-t_0}e(t_0)}=\sum_{i=0}^{-\infty}{a^i e(t-i)} $$

We have obtained the steady state solution.

Steady state solution is an MA(inf) process

The steady state solution is an MA(inf) process with coefficients that are functions of the parameters of the recursive equation. In our example $c_i = a^i$.

The solution is then well defined when the condition under which a general $MA(\infty)$ process is well defined: $$\sum_{i=0}^{-\infty}{c_i^2} < +\infty$$

Which in our example means: $$\sum_{i=0}^{-\infty}{(a^i)^2} < +\infty$$

Which is a geometric serie that converges if $a^2<1$.

This result is valid in general, that is that the seady state solution is a well defined $MA(\infty)$ process for $-1<a<+1$ and it is an AR process.

ARMA processes

Steady state solution to: $$y(t)=a_1y(t-1)+...+a_my(t-m)+c_0e(t)+c_1e(t-1)+...+c_ne(t-n)$$ where $e(t) \sim WN(0,\lambda^2)$ and:

• $a_1,...,a_m,c_0,c_1,...,c_m$ are real parameters
• $m$ and $n$ are the orders of the process which we will denote $ARMA(m,n)$.

Steady state solution

Is computed in the same way we computed the one of an $AR$ process: $$ y(t)=a_1y(t-1)+...+a_my(t-m)+c_0e(t)+c_1e(t-1)+...+c_ne(t-n)=\newline \text{substitute } y(t-1) \newline \text{substitute } y(t-2) \newline ... $$ Untill the initial condition is reached. Then take the limit for $t_0 \to -\infty$.

$ARMA(m,n)$ is an $MA(\infty)$ process whose coefficients are functions of $a_1,...,a_m,c_0,c_1,...,c_m$.

Operatorial representation of ARMA

$$y(t)=a_1y(t-1)+...+a_my(t-m)+c_0e(t)+c_1e(t-1)+...+c_ne(t-n)$$ Can be written with the shift operators: $$(1-a_1z^{-1}-...-a_mz^{-m})y(t)=(c_0+c_1z^{-1}+...+c_nz^{-n})e(t)$$

Transfer function (digital filter)

We can define an operator which takes a $WN$ as input and outputs the steady state solution: $$y(t)=\frac{c_0+c_1z^{-1}+...+c_nz^{-n}}{1-a_1z^{-1}-...-a_mz^{-m}}e(t)=\frac{C(z)}{A(z)}e(t)$$