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2006
Wednesday, November 29, 2006 at 2:30 PM in MC 204
Markov-modulated Financial Models
Dr. Rogemar S. Mamon
Department of Statistics and Actuarial Sciences
The University of Western Ontario
Abstract:
A brief overview of the basic ideas of hidden Markov models (HMMs) will be given. The use of change of probability measure technique to provide optimal estimates for the state of the Markov chain and other auxiliary processes will be illustrated. Recursive filters will be developed. We shall discuss how HMMs can be incorporated in standard financial models to capture the stylised features of the financial markets. Certain financial derivatives will be valued under this framework.