Instructor: Allanus Tsoi

Description: The main concern of this course is the application of hidden Markov filtering techniques on volatility estimation. We will first discuss the dynamics which govern the stock price and its volatility. We then derive the Wonham filters for certain functionals of the hidden Markov chain which is driving the volatility. Error analysis will also be involved. In the first few weeks we will review some basic notions related to discrete time Markov chains, and recall some related martingale calculus.

Pre-requisites: a basic course in probability theory, and the consent of the instructor.