Robustification of an On-line EM Algorithm for Modelling Asset Prices Within an HMM

Christina Erlwein-Sayer () and Peter Ruckdeschel ()
Additional contact information
Christina Erlwein-Sayer: Fraunhofer ITWM
Peter Ruckdeschel: Fraunhofer ITWM

Chapter Chapter 1 in Hidden Markov Models in Finance, 2014, pp 1-31 from Springer

Abstract: Abstract In this paper, we establish a robustification of Elliott’s on-line EM algorithm for modelling asset prices within a hidden Markov model (HMM). In this HMM framework, parameters of the model are guided by a Markov chain in discrete time, parameters of the asset returns are therefore able to switch between different regimes. The parameters are estimated through an on-line algorithm, which utilizes incoming information from the market and leads to adaptive optimal estimates. We robustify this algorithm step by step against additive outliers appearing in the observed asset prices with the rationale to better handle possible peaks or missings in asset returns.

Keywords: Additive Outliers; Asset Returns; Markov Chain; Asset Allocation Problem; Optimal Parameter Estimation (search for similar items in EconPapers)
Date: 2014
References: Add references at CitEc
Citations:

There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:spr:isochp:978-1-4899-7442-6_1

Ordering information: This item can be ordered from
http://www.springer.com/9781489974426

DOI: 10.1007/978-1-4899-7442-6_1

Access Statistics for this chapter

More chapters in International Series in Operations Research & Management Science from Springer
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().