I have constructed a simple HMM (Hidden Markov Model) with 2 states on the Vol (stdev) of a time series of currency returns.
The state vector I produce looks reasonable, in the sense that it appears to have identified periods of high or low vol.
However, I appear to be able to generate a very similar state vector just by applying a simple rule like:
if (Vol) > x then 1 else 0.
Is there any advantage/difference to using a HMM?