#14 : I have the same issue. In the solution they used r=8?. Don’t know from where they got that. #18 : No clue. I have to work on PM.
#14 See here: http://www.analystforum.com/phorums/read.php?12,702959 It looks like a book error #18 The concept in the explanation makes sense ie that the larger value of a1 will move faster toward the mean. I think we were supposed to either take the mean-reverting Beta as 1.04 ( the coefficient in the problem) or just use the concept of larger a1 values revert faster. The numbers didn’t make sense for a mean reverting level of 1 for Beta. T/G
Thnx, #14 - book error, #18 - I don’t agree with statment about a1 at all Statement (book 3, p.224): adjusted beta will move toward 1 more quickly for larger vlaues of a1. badj = a0 + a1*b It’s not correct cause: if a0->1 => badj->1 if a1->1 => badj->b Am I right?