A Martingale Decomposition of Discrete Markov Chains

Peter Hansen

CREATES Research Papers from Department of Economics and Business Economics, Aarhus University

Abstract: We consider a multivariate time series whose increments are given from a homogeneous Markov chain. We show that the martingale component of this process can be extracted by a filtering method and establish the corresponding martingale decomposition in closed-form. This representation is useful for the analysis of time series that are confined to a grid, such as financial high frequency data.

Keywords: Markov Chain; Martingale; Beveridge-Nelson Decomposition (search for similar items in EconPapers)
JEL-codes: C10 C22 C58 (search for similar items in EconPapers)
Pages: 12
Date: 2015-04-01
New Economics Papers: this item is included in nep-ecm, nep-ets and nep-ore
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Citations: View citations in EconPapers (2)

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Journal Article: A martingale decomposition of discrete Markov chains (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:aah:create:2015-18

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