Science and Education Publishing American Journal of Applied Mathematics and Statistics 2333-4576 2 1 2014 02 11 Penalties for Misclassification of a Pure Diagonal Bilinear Process of Order Two as a Moving Average Process of Order Two 47 52 EN O. E. Okereke Department of Statistics, Michael Okpara University of Agriculture, Umudike, Abia State, Nigeria I. S. Iwueze C. O. Omekara AJAMS2014218 10.12691/ajams-2-1-8 2013 07 26 2014 01 20 2014 02 11 The penalty function based on misclassification of a pure diagonal bilinear process of order two as a moving average process of order two was derived in this study. Computation of penalties using the penalty function revealed that such misclassification increases the error variance. Regression analysis of the penalties on the parameters of the pure diagonal bilinear process suggested a second order polynomial regression model. A test of significance of each of the parameters of the fitted model showed that all the parameter estimates were statistically significant at 5% level of significance. The analysis of variance technique was also used to confirm the adequacy of the fitted model.