We propose what be believe to be a novel approach to perform calculations for rational density functions using state space representations of the densities. By standard results from realization theory, a rational probability density function is considered to be the transfer function of a linear...

Three situations in which filtering theory is used in mathematical finance are illustrated at different levels of detail. The three problems originate from the following different works: 1) On estimating the stochastic volatility model from observed bilateral exchange rate news, by R. Mahieu,...

We propose what be believe to be a novel approach to perform calculations for rational density functions using state space representations of the densities. By standard results from realization theory, a rational probability density function is considered to be the transfer function of a linear...

We consider a two-factor Heath–Jarrow–Morton (HJM) model under the risk neutral measure and show that it may be decoupled into a particular dynamic Nelson–Siegel (NS) model plus a somewhat counter-intuitive adjustment (lying outside the NS family) which keeps it arbitrage-free. We assess...