An alternative to the Baum-Welch recursions for hidden Markov models
AbstractWe develop a recursion for hidden Markov model of any order h, which allows us to obtain the posterior distribution of the latent state at every occasion, given the previous h states and the observed data. With respect to the well-known Baum-Welch recursions, the proposed recursion has the advantage of being more direct to use and, in particular, of not requiring dummy renormalizations to avoid numerical problems. We also show how this recursion may be expressed in matrix notation, so as to allow for an efficient implementation, and how it may be used to obtain the manifest distribution of the observed data and for parameter estimation within the Expectation-Maximization algorithm. The approach is illustrated by an application to nancial data which is focused on the study of the dynamics of the volatility level of log-returns.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 38778.
Date of creation: 31 Dec 2011
Date of revision:
Expectation-Maximization algorithm; forward-backward recursions; latent Markov model; stochastic volatility;
Find related papers by JEL classification:
- C13 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - Estimation: General
- C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Longitudinal Data; Spatial Time Series
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-05-22 (All new papers)
- NEP-ECM-2012-05-22 (Econometrics)
- NEP-ORE-2012-05-22 (Operations Research)
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- Francesco Bartolucci, 2002. "A recursive algorithm for Markov random fields," Biometrika, Biometrika Trust, vol. 89(3), pages 724-730, August.
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