Tag Archives: Kalman Filter

A Practical Application of Regime Switching Models to Pairs Trading

In the previous post I outlined some of the available techniques used for modeling market states.  The following is an illustration of how these techniques can be applied in practice.    You can download this post in pdf format here. The chart … Continue reading

Posted in ARMA, Econometrics, ETFs, Markov Model, Mean Reversion, Pairs Trading, Regime Switching, Statistical Arbitrage | Tagged , , , , , | Comments Off

Learning the Kalman Filter

Many people have heard of Kalman filtering, but regard the topic as mysterious. While it’s true that deriving the Kalman filter and proving mathematically that it is “optimal” under a variety of circumstances can be rather intense, applying the filter to a basic linear system is actually very easy. This Matlab file is intended to demonstrate that. Continue reading

Posted in Forecasting, Matlab | Tagged | 13 Comments