Suppose X be a weakly stationary (2nd-order stationary) process with mean μ , variance σ 2 , and autocorrelation function γ ( t ) . Assume that the autocorrelation function γ ( t ) has the form γ ( t ) → t − β L ( t ) as t → ∞ , where 0 < β < 1 and L ( t ) is a slowly varying function at infinity, that is lim t → ∞ L ( t x ) L ( t ) = 1 for all x > 0 . For example, L ( t ) = c o n s t and L ( t ) = log ( t ) are slowly varying functions.
Let X k ( m ) = 1 m H ( X k m − m + 1 + ⋅ ⋅ ⋅ + X k m ) , where k = 1 , 2 , 3 , … , denote an aggregated point series over non-overlapping blocks of size m , for each m is a positive integer.
X is called an exactly self-similar process if there exists a self-similar parameter H such that X k ( m ) has the same distribution as X . An example of exactly self-similar process with H is Fractional Gaussian Noise (FGN) with 1 2 < H < 1 .Definition:Fractional Gaussian Noise (FGN)
X ( t ) = B H ( t + 1 ) − B H ( t ) , ∀ t ≥ 1 is called the Fractional Gaussian Noise, where B H ( ⋅ ) is a Fractional Brownian motion.
X is called an exactly second order self-similar process if there exists a self-similar parameter H such that X k ( m ) has the same variance and autocorrelation as X . X is called an asymptotic second order self-similar process with self-similar parameter H if γ ( m ) ( t ) → 1 2 [ ( t + 1 ) 2 H − 2 t 2 H + ( t − 1 ) 2 H ] as m → ∞ , ∀ t = 1 , 2 , 3 , … Suppose X ( t ) be a weakly stationary (2nd-order stationary) process with mean μ and variance σ 2 . The Autocorrelation Function (ACF) of lag t is given by γ ( t ) = c o v ( X ( h ) , X ( h + t ) ) σ 2 = E [ ( X ( h ) − μ ) ( X ( h + t ) − μ ) ] σ 2
Definition:
A weakly stationary process is said to be "Long-Range-Dependence" if ∑ t = 0 ∞ | γ ( t ) | = ∞
A process which satisfies γ ( t ) → t − β L ( t ) as t → ∞ is said to have long-range dependence. The spectral density function of long-range dependence follows a power law near the origin. Equivalently to γ ( t ) → t − β L ( t ) , X has long-range dependence if the spectral density function of autocorrelation function, f t ( w ) = ∑ t = 0 ∞ γ ( t ) e i w t , has the form of w − γ L ( w ) as w → 0 where 0 < γ < 1 , L is slowly varying at 0.
also see
X ( m ) = 1 m ( X 1 + ⋅ ⋅ ⋅ + X m )
When an autocorrelation function of a self-similar process satisfies γ ( t ) → t − β L ( t ) as t → ∞ , that means it also satisfies V a r ( X ( m ) ) → a m − β as m → ∞ , where a is a finite positive constant independent of m, and 0<β<1.
Assume that the underlying process X is Fractional Gaussian Noise. Consider the series X ( 1 ) , … , X ( n ) , and let Y ( n ) = ∑ i = 1 n X ( i ) .
The sample variance of X ( i ) is S 2 ( n ) = 1 n ∑ i = 1 n X ( i ) 2 − ( 1 n ) 2 Y n 2
Definition:R/S statistic
R S ( n ) = 1 S ( n ) [ max 0 ≤ t ≤ n ( Y t − t n Y n ) − min 0 ≤ t ≤ n ( Y t − t n Y n ) ]
If X ( i ) is FGN, then E ( R S ( n ) ) → C H × n H
Consider fitting a regression model : l o g R S ( n ) = l o g ( C H ) + H l o g ( n ) + ϵ n , where ϵ n ∼ N ( 0 , σ 2 )
In particular for a time series of length N divide the time series data into k groups each of size N k , compute R S ( n ) for each group.
Thus for each n we have k pairs of data ( l o g ( n ) , l o g R S ( n ) ).There are k points for each n , so we can fit a regression model to estimate H more accurately. If the solpe of the regression line is between 0.5~1, it is a self-similar process.
Variance of the sample mean is given by V a r ( X ¯ n ) → c n 2 H − 2 , ∀ c > 0 .
For estimating H, calculate sample means X ¯ 1 , X ¯ 2 , ⋯ , X ¯ m k for m k sub-series of length k .
Overall mean can be given by X ¯ ( k ) = 1 m k ∑ i = 1 m k X ¯ i ( k ) , sample variance S 2 ( k ) = 1 m k − 1 ∑ i = 1 m k ( X ¯ i ( k ) − X ¯ ( k ) ) 2 .
The variance-time plots are obtained by plotting log S 2 ( k ) against log k and we can fit a simple least square line through the resulting points in the plane ignoring the small values of k.
For large values of k , the points in the plot are expected to be scattered around a straight line with a negative slope 2 H − 2 .For short-range dependence or independence among the observations, the slope of the straight line is equal to -1.
Self-similarity can be inferred from the values of the estimated slope which is asymptotically between –1 and 0, and an estimate for the degree of self-similarity is given by H ^ = 1 + 1 2 ( s l o p e ) .
Whittle's approximate maximum likelihood estimator (MLE) is applied to solve the Hurst's parameter via the spectral density of X . It is not only a tool for visualizing the Hurst's parameter, but also a method to do some statistical inference about the parameters via the asymptotic properties of the MLE. In particular, X follows a Gaussian process. Let the spectral density of X , f x ( w ; θ ) = σ ϵ 2 f x ( w ; ( 1 , η ) ) , where θ = ( σ ϵ 2 , η ) = ( σ ϵ 2 , H , θ 3 , … , θ k ) , H = γ + 1 2 , and θ 3 , … , θ k construct a short-range time series autoregression (AR) model, that is X j = ∑ i = 1 k α i X j − i + ϵ j , with V a r ( ϵ j ) = σ ϵ 2 .
Thus, the Whittle's estimator η ^ of η minimizes the function Q ( η ) = ∫ − π π I ( w ) f ( w ; ( 1 , η ) ) d w , where I(w) denotes the periodogram of X as ( 2 π n ) − 1 | ∑ j = 1 n X j e i w j | 2 and σ ^ 2 = ∫ − π π I ( w ) f ( w ; ( 1 , η ^ ) ) d w . These integrations can be assessed by Riemann sum.
Then n 1 / 2 ( θ ^ − θ ) asymptotically follows a normal distribution if X j can be expressed as a form of an infinite moving average model.
To estimate H , first, one has to calculate this periodogram. Since I n ( w ) is an estimator of the spectral density, a series with long-range dependence should have a periodogram, which is proportional to | λ | 1 − 2 H close to the origin. The periodogram plot is obtained by ploting log ( I n ( w ) ) against log ( w ) .
Then fitting a regression model of the log ( I n ( w ) ) on the log ( w ) should give a slope of β ^ . The slope of the fitted straight line is also the estimation of 1 − 2 H . Thus, the estimation H ^ is obtained.
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There are two common problems when we apply the periodogram method. First, if the data does not follow a Gaussian distribution, transformation of the data can solve this kind of problems. Second, the sample spectrum which deviates from the assumed spectral density is another one. An aggregation method is suggested to solve this problem. If X is a Gaussian process and the spectral density function of X satisfies w − γ L ( w ) as w → ∞ , the function, m − H L − 1 2 ( m ) ∑ i = ( j − 1 ) m + 1 m k ( X i − E ( | X i | ) ) , j = 1 , 2 , … , [ n m ] , converges in distribution to FGN as m → ∞ .
