Regime-Switching Process

Gilles Zumbach
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Gilles Zumbach: Consulting in Financial Research

Chapter Chapter 9 in Discrete Time Series, Processes, and Applications in Finance, 2013, pp 143-145 from Springer

Abstract: Abstract After a general presentation of the regime-switching processes, the simplest versions with two and three states are studied. The process with two states is always time-reversal invariant, but not the processes with three or more states. In order to obtain realistic probability density, the constraints on the parameters of a regime-switching process are quite strong. But within these constraints, it is not possible to obtain a realistic multiscale heteroscedasticity. The mug shots show clearly the limitations of this class of processes with respect to the desired stylized facts.

Keywords: Markov Chain; Random Walk; Regime Switching; Switching Model; Time Reversal Symmetry (search for similar items in EconPapers)
Date: 2013
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DOI: 10.1007/978-3-642-31742-2_9

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