Hot answers tagged hidden-markov-model
The clearest and most intuitive article I have seen so far is Kritzman et al., Regime Shifts: Implications for Dynamic Strategies in FAJ (May / June 2012) It not only shows how you can use HMM for financial modelling but it also goes through the actual estimation algorithm (Baum-Welch) step-by-step and even gives full MATLAB-code. From the abstract: ...
Systematic Investor also did a two part series implementation in R which is also quite helpful as he details the pitfalls too. Post One: http://systematicinvestor.wordpress.com/2012/11/01/regime-detection/ Part Two: http://systematicinvestor.wordpress.com/2012/11/15/regime-detection-pitfalls/
Have a look at the following two papers, one from Chris Rogers and Liang Zhang where they introduce a model using HMM which captures stylized facts of financial returns. And the second where we extended this model to risk measures. Implementation in R is strait forward using ML as mentioned in the paper. ...
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