Bayesian Estimation for Markov Modulated Asset Prices

Abstract : A Stochastic Differential Equation (SDE) appearing in mathematical finance is considered in random environment by assuming that its two parameters are switched by an unobserved continuous-time Markov chain whose states represent the states of the market environment. A Dirichlet process is placed as a prior on the space of the sample paths of this chain, leading to a hierarchical Dirichlet model whose estimation is done both on simulated data and on a real data set from the Indian market.
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Submitted on : Friday, March 26, 2010 - 6:58:38 AM
Last modification on : Tuesday, March 19, 2019 - 2:48:13 PM
Long-term archiving on: Tuesday, September 28, 2010 - 11:37:58 AM

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Richard Emilion, Hafedh Faires, Srikanth K. Iyer. Bayesian Estimation for Markov Modulated Asset Prices. 2009. ⟨hal-00464386⟩

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