Filtering and Parameter Estimation for a Mean Reverting Interest Rate Model
AbstractA 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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Bibliographic InfoPaper provided by Quantitative Finance Research Centre, University of Technology, Sydney in its series Research Paper Series with number 17.
Date of creation: 01 Aug 1999
Date of revision:
filtering; hidden Markov models; interest rate models; EM algorithm;
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- Christina Erlwein & Rogemar Mamon, 2009. "An online estimation scheme for a Hull–White model with HMM-driven parameters," Statistical Methods and Applications, Springer, vol. 18(1), pages 87-107, March.
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