Kalman Filter Application

Kalman Filter is applied to estimate the parameters of CIR interest rate model.

Description

Corresponds to the paper "estimating and testing exponential-affine term structure models by kalman filter" published by Review of Quantitative Finance and Accounting in 1999.

• Acknowledgements: This submission has inspired the following:; Kalman Filter Application CIR
• Required Products: Optimization Toolbox
• MATLAB release: MATLAB 7.7 (R2008b)

[Chiara LONG]

Do you have also the extended kalman filter? ^^

[Biao]

no, I just implement the methodology in that paper. will think about extended kalman filter, do you have a good paper on it? ideally about term structure estimation as well.

[Nils Delava]

Hi, had a look at the files, and the paper, and the only part which I see as unclear is why you choose the sigmas in R to be used in maximizing the ll by fmincon? looked on page 31 in the paper, and in the kalman filter in detail section, but I still don't get the logic of this part. If possible, please could you clarify?

[Biao]

because we dont actually know the variance of measurement error, do we? some ppl treat it as a small number such as 0.0001 and optimize only the left parameters.

[Hüseyin]

Hi Biao
Do you plan to update your code to enable to estimate multifactor models? I think the generalized one will be more usefull

[Biao]

Adding multifactor models is straightforward, what you need to do is to change the transition and measurement equations.

[Yan Du]

To Biao, yes, but when it comes to optimizer, it seems have problem to optimize 8 unknown variables. Did you implement ?

[Yan Du]

Hi Biao, how do you decide your initial parameter input value ?