Regime Switching Volatility Calibration by the Baum-Welch Method

Details Regime Switching Volatility Calibration by the Baum-Welch Method Regime Switching Volatility Calibration by the Baum-Welch Method

2009-04-09

arxiv.org/abs/0904.1500v1

Economy

Quantitative Finance

Statistical Finance

Scientific paper

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 the Baum-Welch filter to S&P 500 data and validate its performance in and out of sample.

Affiliated with

Also associated with

No associations

Rating

Regime Switching Volatility Calibration by the Baum-Welch Method does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Regime Switching Volatility Calibration by the Baum-Welch Method, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Regime Switching Volatility Calibration by the Baum-Welch Method will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-408579