Stochastic Filtering with Applications in Finance

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World Scientific, 2010 - Business & Economics - 339 pages
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This book provides a comprehensive account of stochastic filtering as a modeling tool in finance and economics. It aims to present this very important tool with a view to making it more popular among researchers in the disciplines of finance and economics. It is not intended to give a complete mathematical treatment of different stochastic filtering approaches, but rather to describe them in simple terms and illustrate their application with real historical data for problems normally encountered in these disciplines. Beyond laying out the steps to be implemented, the steps are demonstrated in the context of different market segments. Although no prior knowledge in this area is required, the reader is expected to have knowledge of probability theory as well as a general mathematical aptitude.

Its simple presentation of complex algorithms required to solve modeling problems in increasingly sophisticated financial markets makes this book particularly valuable as a reference for graduate students and researchers interested in the field. Furthermore, it analyses the model estimation results in the context of the market and contrasts these with contemporary research publications. It is also suitable for use as a text for graduate level courses on stochastic modeling.

 

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Contents

Stochastic Filtering in Finance
1
2 Foreign Exchange Market Filtering Applications
20
3 Equity Market Filtering Applications
48
4 Filtering Application Inflation and the Macroeconomy
76
5 Interest Rate Model and NonLinear Filtering
94
6 Filtering and Hedging using Interest Rate Futures
125
7 A Multifactor Model of Credit Spreads
149
8 Credit Default Swaps Filtering the Components
184
9 CDS Options Implied Volatility and Unscented Kalman Filter
229
10 Stochastic Volatility Model and NonLinear Filtering Application
257
11 Applications for Filtering with Jumps
284
Bibliography
320
Index
337
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About the author (2010)

Bhar is an Associate Professor in the School of Banking and Finance at The University of New South Wales in Australia.

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