Forecasting Trends with Asset Prices
Copyright policy )Forecasting Trends with Asset Prices
In this paper, we consider a stochastic asset price model where the trend is an unobservable Ornstein Uhlenbeck process. We first review some classical results from Kalman filtering. Expectedly, the choice of the parameters is crucial to put it into practice. For this purpose, we obtain the likelihood in closed form, and provide two on-line computations of this function. Then, we investigate the asymptotic behaviour of statistical estimators. Finally, we quantify the effect of a bad calibration with the continuous time mis-specified Kalman filter. Numerical examples illustrate the difficulty of trend forecasting in financial time series.
26 pages, 11 figures
- Monash University Australia
- University of Paris-Saclay France
- École Polytechnique France
- CentraleSupélec
- BNP Paribas France
[QFIN.ST] Quantitative Finance [q-fin]/Statistical Finance [q-fin.ST], FOS: Economics and business, FOS: Computer and information sciences, Statistical Finance (q-fin.ST), Portfolio Management (q-fin.PM), [QFIN.CP] Quantitative Finance [q-fin]/Computational Finance [q-fin.CP], Quantitative Finance - Statistical Finance, Applications (stat.AP), Statistics - Applications, Quantitative Finance - Portfolio Management
[QFIN.ST] Quantitative Finance [q-fin]/Statistical Finance [q-fin.ST], FOS: Economics and business, FOS: Computer and information sciences, Statistical Finance (q-fin.ST), Portfolio Management (q-fin.PM), [QFIN.CP] Quantitative Finance [q-fin]/Computational Finance [q-fin.CP], Quantitative Finance - Statistical Finance, Applications (stat.AP), Statistics - Applications, Quantitative Finance - Portfolio Management
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