Questions tagged [hidden-markov-model]

sequential data analysis using state space models with discrete latent variables and discrete or continuous observed variables

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CIR-Model with regime switching Mean-Reversion level - Hamilton Algorithm

I am trying to implement the Algorithm from (1) in R, using the same approach as in (2) and respectively. The main idea is that $x_t$ follows a CIR-process and that the parameters of the latent ...
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1answer
96 views

Why do we make the Markov assumption on financial markets? [closed]

Why are Hidden Markov Models (HMM) a good fit to describe the behaviour of the prices of financial assets, when these models require that the underlying stochastic process satisfies the first-order ...
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56 views

USING HIDDEN MARKOV MODEL TO DETECT MARKET REGIMES IN R

How can I use a hidden Markov model to detect different regimes within AAPL's returns using the R programming language . If anyone can point me to any papers or links which can help me out that would ...
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38 views

Evaluating Markov switching garch models with R

Hello I have been working on a Markov switching GARCH model my intention is to use it to trade options volatility . I have created a Markov switching garch model using the MSGARCH package in R and in ...
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20 views

Which optimality criteria should be used to determine state sequences in HMM?

There are several criteria to determine state sequences in HMM. For example, most possible state for each individual observation, and most possible sequence. Which one should I use to get average ...
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365 views

Hidden Markov Models for Higher frequency trading

I'm curious if anyone can validate my train of thought here with the utility of Hidden Markov models for modeling things happening on higher frequency trading activity versus lower frequency, and in ...
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1answer
100 views

When predicting Forex price using HMM what, typically, are the states and what are the observations?

I understand their abstract definition but having trouble applying the HMM method to Forex prices. What should the observations be? Then what should the states be (like "hot", "cold", etc.)?
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1answer
1k views

MSGARCH package on R

I am using the MSGARCH package on R to fit a Markov switching GARCH model. I fit the GARCH model using fit.MLE (so standard Maximum Likelihood), using three regimes. The parameters are estimated and ...
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1answer
1k views

James Simons (Renaissance Technologies Corp.) and his model [closed]

I think some of you know the famous billionaire mathematician James Simons. Somewhat as Warren Buffet, this guy cracked the Wall Street with a mathematical model (essentially most statistic and a bit ...
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2answers
617 views

Asset allocation problem using Hidden Markov Model

I am recently getting more interested in Hidden Markov Models (HMM) and its application on financial assets to understand their behavior. But what captured my attention the most is the use of asset ...
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2answers
91 views

Regime switching model getting data

I am trying to find a dataset (oil prices, S&P index, DAX returns etc.) in order to visualize the high volatility and low volatility periods in a plot. So far, I have not found a dataset that has ...
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1answer
1k views

predict next day's close price using hmm

I am reading this paper(Stock market forecasting using hidden Markov model: a new approach) and get confused about how they predict the next day's close price. Below is what the authors say about how ...
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2answers
424 views

Kalman filtering

Is it possible to the extract the latent factor f from the following equations using kalman smoothing? f is the unobserved state value while z is observed series. From the literature i could read ...
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243 views

modeling regime switching for Correlation matrix

I am trying to estimate covariance in multiple time series. However, I want to do this using a regime-switching framework. So, I start with fitting a GARCH(1,1) model and then de-volatalize the series....
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2answers
951 views

Hidden Markov Models methods for selecting optimal number of states

Package RHmm (R) I have a vector which I fit into a hmm model in an attempt to select an optimal number of states for a hidden markov model. ...
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222 views

Markov switching model estimation

We are testing Markov switching models to forecast risk regimes, similar to the paper by Kritzman, Page and Turkington. We find that in some cases the Baum-Welch algorithm converges very slowly or not ...
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1answer
850 views

Optimal trading strategy in toy world of simple Hidden Markov model with Gaussians

I want to solve the following optimization problem: What is the optimal general trading strategy (in the sense of the highest Sharpe ratio) on a time series which is the result of a Hidden Markov ...