Please use this identifier to cite or link to this item:
http://bura.brunel.ac.uk/handle/2438/4424
Title: | Regime switching volatility calibration by the Baum-Welch method |
Authors: | Mitra, S Date, P |
Keywords: | Regime switching;Stochastic volatility;Calibration;Hamilton filter;Baum-Welch |
Issue Date: | 2010 |
Publisher: | Elsevier |
Citation: | Journal of Computational and Applied Mathematics. 234(12): 3243–3260, Oct 2010 |
Abstract: | Regime switching volatility models provide a tractable method of modelling stochastic volatility. Currently the most popular method of regime switching calibration is the Hamilton filter. We propose using the Baum-Welch algorithm, an established technique from Engineering, to calibrate regime switching models instead. We demonstrate the Baum-Welch algorithm and discuss the significant advantages that it provides compared to the Hamilton filter. We provide computational results of calibrating and comparing the performance of the Baum-Welch and the Hamilton filter to S&P 500 and Nikkei 225 data, examining their performance in and out of sample. |
URI: | http://www.sciencedirect.com/science/article/pii/S0377042710002190 http://bura.brunel.ac.uk/handle/2438/4424 |
ISSN: | 0377-042 |
Appears in Collections: | Dept of Mathematics Research Papers Mathematical Sciences |
Files in This Item:
File | Description | Size | Format | |
---|---|---|---|---|
Fulltext.pdf | 244.35 kB | Adobe PDF | View/Open |
Items in BURA are protected by copyright, with all rights reserved, unless otherwise indicated.