Title :
HMM volatility estimation
Author :
Elliott, R.J. ; Malcolm, W.P. ; Tsoi, A.
Author_Institution :
Haskayne Sch. of Bus., Calgary Univ., Alta., Canada
Abstract :
We apply a robust form of filtering equations for a continuous time hidden Markov model to estimate the volatility of a risky asset. The robust form of the filters we consider offers substantial improvement over classical filtering by eliminating stochastic integrations completely. A simulation study is included to indicate the benefits.
Keywords :
continuous time systems; filtering theory; finance; hidden Markov models; probability; Duncan-Mortenson-Zakai equations; backwards equations; continuous time hidden Markov model; forwards equations; martingales; volatility estimation; Filtering; Filters; Forward contracts; Hidden Markov models; Indexing; Integral equations; Markov processes; Mathematics; Robustness; Stochastic processes;
Conference_Titel :
Decision and Control, 2002, Proceedings of the 41st IEEE Conference on
Print_ISBN :
0-7803-7516-5
DOI :
10.1109/CDC.2002.1184527
