Solution

ID: past-exam-of-the-mathematics-course-of-the-university-of-cambridge/2018/iii/paper-218/5/c/solution

By the Markov property, all factors in the stationary likelihood function that involve are the transitions from to and from to . Hence conditioning on later observations adds no information once the two neighbors are known. Writing , and , its conditional density is proportional to
The quadratic coefficient of is and the linear coefficient is . Completing the square therefore gives the Gaussian AR1 bridge
Here is the innovation variance, not the marginal stationary variance.

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