Question:

(a) Explain and critically discuss the validity of the various tests available to test for stochastic non-stationarity?

(40 per cent of the marks)

(b) Explain the meaning and significance of the concept of cointegration with the aid of appropriate examples.

(30 per cent of the marks)

(c) Explain the stylized facts as to why financial data cannot generally be explained effectively by using linear time series models. Which of these features could be modelled using a TGARCH (p, q) process?

(30 per cent of the marks)