FORECASTING TRENDS WITH ASSET PRICES

Ahmed Belhadjayed, Grégoire Loeper and Frédéric Abergel ()
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Ahmed Belhadjayed: FiQuant - Chaire de finance quantitative - MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec
Grégoire Loeper: School of Mathematical Sciences [Clayton] - Monash University [Clayton]
Frédéric Abergel: MICS - Mathématiques et Informatique pour la Complexité et les Systèmes - CentraleSupélec

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Abstract: The question of interest in this paper is the estimation of the trend of a financial asset, and the impact of its misspecification on investment strategies. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein-Uhlenbeck process. Motivated by the use of Kalman filtering as a forecasting tool, we address the problem of parameters estimation, and measure the effect of parameters mis-specification. Numerical examples illustrate the difficulty of trend forecasting in financial time series.

Date: 2016
Note: View the original document on HAL open archive server: https://hal.science/hal-01512431
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Published in Quantitative Finance, 2016, 17 (3), pp.369-382. ⟨10.1080/14697688.2016.1206959⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-01512431

DOI: 10.1080/14697688.2016.1206959

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