### Forums

### Blogroll

### Search

### Archives

- November 2015
- October 2015
- August 2015
- July 2015
- June 2015
- May 2015
- April 2015
- March 2015
- February 2015
- January 2015
- December 2014
- November 2014
- October 2014
- September 2014
- August 2014
- July 2014
- June 2014
- May 2014
- April 2014
- December 2012
- November 2012
- September 2011
- June 2011
- May 2011
- April 2011
- March 2011
- February 2011
- July 2010
- July 2009
- May 2009

### Categories

- Algo Design Language (6)
- Algo Strategy Engine (2)
- Algorithmic Trading (13)
- Alternative Investment (1)
- ARFIMA (1)
- ARMA (4)
- Asian markets (2)
- Binary Options (1)
- Black Noise (2)
- Bond Futures (1)
- CAPM (1)
- Cointegration (7)
- Commodity Futures (3)
- Correlation (1)
- Correlation Dimension (1)
- Correlation Integral (1)
- CrashMetrics (1)
- CTA (1)
- Day Trading (2)
- Derivatives (3)
- Direction Prediction (4)
- Dispersion (1)
- Dynamic Capital Model (1)
- Econometrics (8)
- Economics (1)
- Econophysics (2)
- Education (1)
- Emerging Markets (1)
- eMini Futures (4)
- Equity Curve (2)
- Equity Futures (1)
- ETFs (6)
- F/X (1)
- Factor Models (1)
- Fat Tails (3)
- FIGARCH (2)
- Financial Engineering (5)
- Fixed Income Futures (1)
- Forecasting (17)
- Fourier Transforms (2)
- Fractional Brownian Motion (2)
- Fractional Cointegration (2)
- Fractional Integration (3)
- Futures (10)
- GARCH (1)
- Genetic Programming (1)
- Graduate Programs (1)
- Granger Causality (1)
- Hedge Funds (3)
- Henon Attractor (1)
- High Frequency Finance (6)
- High Frequency Trading (10)
- Hurst Exponent (2)
- Hybrid Products (1)
- Interactive Brokers (1)
- Interest Rate Models (1)
- Jobs (1)
- Johansen (2)
- Julia (2)
- Kalman Filter (2)
- Kelly Criterion (2)
- Latency (1)
- Logistic Attractor (1)
- Logit Regression (2)
- Long Memory (4)
- Long/Short (1)
- Machine Learning (5)
- Market Efficiency (2)
- Market Microstructure (4)
- Market Timing (3)
- Markov Model (1)
- Markov State Models (1)
- Mathematca (1)
- Mathematica (6)
- Matlab (8)
- Mean Reversion (7)
- Meta-Strategy (2)
- Metals (1)
- Model Review (1)
- Modeling (4)
- Momentum (4)
- Money Management (4)
- Monte Carlo (1)
- Multifactor Models (2)
- Natural Gas Futures (1)
- Nearest Neighbor (1)
- Neural Networks (1)
- Nonlinear Classification (2)
- Nonlinear Dynamics (2)
- Optimal f (2)
- Options (7)
- Order Flow (2)
- Pairs Trading (5)
- Pattern Trading (1)
- Performance Testing (2)
- Pink Noise (2)
- Portfolio Management (4)
- Principal Components Analysis (1)
- Programming (2)
- Proprietary Traders (1)
- Purchasing Power Parity (1)
- Quant/Traders (2)
- Random Forrests (1)
- Recruitment (1)
- REGARCH (3)
- Regime Shifts (4)
- Regime Switching (2)
- Regression (1)
- Risk Management (3)
- S&P500 Index (9)
- Scalping (2)
- Seasonal Effects (1)
- Signal Processing (2)
- Spline Methods (1)
- Spread Trading (2)
- Statistical Arbitrage (8)
- Stochastic Differential Equations (1)
- Stochastic Process Control (1)
- Stock Market (1)
- Strange Attractor (1)
- Strategy Development (6)
- Support Vector Machines (1)
- Systematic Strategies (9)
- Time Series Modeling (5)
- Toxic Flow (2)
- TradeStation (5)
- Trading (9)
- Trading Technologies (3)
- Uncategorized (10)
- Unit Roots (1)
- Van Tharp (1)
- Venture Capital (1)
- VIX Index (15)
- Volatility ETF Strategy (12)
- Volatility Modeling (31)
- volatility sign prediction forecasting Engle (3)
- White Noise (3)
- Yield Curve Modeling (1)

### Tag Cloud

ADL ARFIMA ARMA Models Black Noise Direction Prediction ETFs Financial engineering Forecasting Fourier Transforms Fractional Brownian Motion Fractional Cointegration Fractional Integration Futures GARCH High Frequency Trading Jump Diffusion Kalman Filter Kurtosis Long Memory Machine Learning Market Microstructure Market Timing Mathematica Mean Reversion Momentum MultiFactor Models Natural Gas Option Pricing Options Pairs Trading REGARCH Regime Shifts Robustness S&P500 Index Signal Processing Skewness Smile Statistical Arbitrage Stochastic Volatility Toxic Flow Tradestation VIX Volatility Volatility Dynamics White Noise

# 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 ETFs, Kalman Filter, Markov Model, Pairs Trading, Regime Switching, Statistical Arbitrage
Comments Off on A Practical Application of Regime Switching Models to Pairs Trading

## 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