Engineering Commons^™

Estimation Of Hidden Markov Models And Their Applications In Finance, Anton Tenyakov

Electronic Thesis and Dissertation Repository

Movements of financial variables exhibit extreme fluctuations during periods of economic crisis and times of market uncertainty. They are also affected by institutional policies and intervention of regulatory authorities. These structural changes driving prices and other economic indicators can be captured reasonably by models featuring regime-switching capabilities. Hidden Markov models (HMM) modulating the model parameters to incorporate such regime-switching dynamics have been put forward in recent years, but many of them could still be further improved. In this research, we aim to address some of the inadequacies of previous regime-switching models in terms of their capacity to provide better forecasts …