Forecasting trends with asset prices
Ahmed Bel Hadj Ayed,
Gr\'egoire Loeper and
Fr\'ed\'eric Abergel
Papers from arXiv.org
Abstract:
In this paper, we consider a stochastic asset price model where the trend is an unobservable Ornstein Uhlenbeck process. We first review some classical results from Kalman filtering. Expectedly, the choice of the parameters is crucial to put it into practice. For this purpose, we obtain the likelihood in closed form, and provide two on-line computations of this function. Then, we investigate the asymptotic behaviour of statistical estimators. Finally, we quantify the effect of a bad calibration with the continuous time mis-specified Kalman filter. Numerical examples illustrate the difficulty of trend forecasting in financial time series.
Date: 2015-04, Revised 2015-04
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Persistent link: https://EconPapers.repec.org/RePEc:arx:papers:1504.03934
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