FORECASTING TRENDS WITH ASSET PRICES

Abstract : The question of interest in this paper is the estimation of the trend of a financial asset, and the impact of its misspecification on investment strategies. The setting we consider is that of a stochastic asset price model where the trend follows an unobservable Ornstein-Uhlenbeck process. Motivated by the use of Kalman filtering as a forecasting tool, we address the problem of parameters estimation, and measure the effect of parameters mis-specification. Numerical examples illustrate the difficulty of trend forecasting in financial time series.
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Ahmed Belhadjayed, Grégoire Loeper, Frédéric Abergel. FORECASTING TRENDS WITH ASSET PRICES. Quantitative Finance, Taylor & Francis (Routledge), 2016, 17 (3), pp.369-382. ⟨http://www.tandfonline.com/doi/abs/10.1080/14697688.2016.1206959⟩. ⟨10.1080/14697688.2016.1206959⟩. ⟨hal-01512431⟩

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