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Apr 23

Kalman Filter Finance

Posted by abiao at 08:37 | Code » Other | Comments(0) | Reads(8661)
A general example of Kalman filter algorithm was briefly discussed at the blog post Kalman filter example, where a Matlab toolbox link was shared as well. When it comes to an application of Kalman filter in finance, one of the best and ealiest paper is Estimating and Testing Exponential-Affine Term Structure Models by Kalman Filter (a simple search at Google Scholor tells you this paper has been cited by over 180 times), in the paper the authors do an empirical analysis of Kalman filter to two special cases of interest rate models, namely the Gaussian case (Vasicek 1977) and the non-Gaussian case (Cox Ingersoll and Ross1985 and Chen and Scott 1992), besides a detailed description of how to apply this algorithm step by step.

Download the programming files of Estimating exponential affine term structure models at the author's home page http://www.rotman.utoronto.ca/~jcduan/, however, they are in GAUSS language I am unfamiliar with (I used to use it when I studied in Germany seven years ago), so check yourself then.

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