Filtering and Parameter Estimation for a Mean Reverting Interest Rate Model

A Hidden Markov Model with mean reverting characteristics is considered as a model for financial time series, particularly interest rates. The optimal filter for the state of the hidden Markov chain is obtained. A number of auxiliary filters are obtained that enable the parameters of the model to be estimated using the EM algorithm. A simulation study demonstrates the feasibility of this approach.

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Year of publication:	1999-08-01
Authors:	Elliott, R. ; Fischer, P. ; Platen, Eckhard
Institutions:	Finance Discipline Group, Business School
Subject:	filtering \| hidden Markov models \| interest rate models \| EM algorithm

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Series:	Research Paper Series.
Type of publication:	Book / Working Paper
Notes:	Number 17
Source:	RePEc - Research Papers in Economics

Persistent link: https://www.econbiz.de/10004984582