Can somebody explain why those are the answers…it doesnt make any sense… for q 14, i get a totally diff value, and it seems straight forward… q18: Mean reverting level : b0/(1-b1) == -0.155. Now if u use 1/3 for value of alpha…then adjusted Beta = 0.333333+ 2/3*1.04 ==1.026666 If yo u use 1/4 for alpha you get 0.25+ 0.75*1.04= 1.03 How is using the 1/4 Alpha giving a Adj Beta any close to mean reverting level???
The higher the a1, the quicker it reaches 1. Before a0 was 1/3 and a1 was 2/3 (0.667). Then the new a0 is 1/4 and a1 3/7 (0.75). So a1new > a1 old - thus a1new will reach the mean reverting level quicker than a1old