Ergodic properties of some hidden Markov models with applications to mathematical finance.
Published: 2006
Language: eng
Number of pages: 103
ISBN-13: 9780494219164
Description: We investigate the ergodic properties of a class of stochastic processes with applications to the theory of energy prices and interest rate modeling. We apply these properties to the calibration of parameters using the Method of Moments. In particular, we are interested in an observable mean reverting process X the parameters of which (its equilibrium state, speed of reversion, and volatility) are functions of a common non-observable Markov process Y.In the last chapter we perform numerical simulations in order to verify the convergence predicted by the ergodic theorem. We also perform the calibration of the parameters.For both the Regime Switching model and the Stochastic Drift model, we prove that the continuous-time observable component is ergodic. We also prove the ergodicity of any time discretization of it with fixed time step.In Chapter 3 we study the ergodic properties of a continuous-time process with two states. This well studied process is a building block for the Regime Switching model we study in Chapter 4. Chapter 5 is devoted to the study of class of models which share with the Pilipovic's model the property of having a hidden stochastic drift. The ergodic properties of the model allow us to introduce a condition derived from actual market operations: price caps.In Chapter 2 we summarize many important properties of strictly stationary processes. It concludes with a method we developed to verify the strict stationarity and ergodicity of X from the ergodic properties of the hidden process Y. We also give conditions for the existence of the moments, and a procedure to compute them exactly.
Notes: Source: Dissertation Abstracts International, Volume: 68-01, Section: B, page: 0326.

Thesis (Ph.D.)--University of Toronto, 2006.

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