Filtering of a multi-dimension stochastic volatility model
Em algorithm, Filtering, Hidden markov model, Stochastic volatility
Stochastic Analysis and Applications
In this article, we study a stochastic volatility model for a class of risky assets. We assume that the volatilities of the assets are driven by a common state of economy, which is unobservable and represented by a hidden Markov chain. Under this hidden Markov model (HMM), we develop recursively computable filtering equations for certain functionals of the chain. Expectation maximization (EM) parameter estimation is then used. Applications to an optimal asset allocation problem with mean-variance utility are given. © Taylor & Francis Group, LLC.
Department of Mathematics
Original Publication Date
DOI of published version
Luo, Shangzhen, "Filtering of a multi-dimension stochastic volatility model" (2011). Faculty Publications. 1939.