Regime Switching Volatility Calibration by the Baum-Welch Method

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dc.creatorMitra, Sovan
dc.date2009-04-09
dc.date.accessioned2026-07-07T13:01:56Z
dc.date.available2026-07-07T13:01:56Z
dc.descriptionRegime switching volatility models provide a tractable method of modelling stochastic volatility. Currently the most popular method of regime switching calibration is the Hamilton filter. We propose using the Baum-Welch algorithm, an established technique from Engineering, to calibrate regime switching models instead. We demonstrate the Baum-Welch algorithm and discuss the significant advantages that it provides compared to the Hamilton filter. We provide computational results of calibrating the Baum-Welch filter to S&P 500 data and validate its performance in and out of sample.
dc.identifierhttps://arxiv.org/abs/0904.1500
dc.identifierhttp://arxiv.org/abs/0904.1500
dc.identifier.urihttp://salesiana.dossiersoluciones.com/handle/123456789/226318
dc.subjectStatistical Finance
dc.subjectComputational Finance
dc.titleRegime Switching Volatility Calibration by the Baum-Welch Method
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