Sequential Monte Carlo methods for filtering of unobservable components of multidimensional diffusion Markov processes

• Main Author: Ellida M. Khazen
• Format: Article
• Language: English
• Published: Taylor & Francis Group 2016-12-01
• Series: Cogent Mathematics
• Subjects: nonlinear filtering; multidimensional diffusion Markov process; particle filters; sequential Monte Carlo methods; simulation; quadratic variation; volatility
• Online Access: http://dx.doi.org/10.1080/23311835.2015.1134031

The problem of filtering of unobservable components x(t) of a multidimensional continuous diffusion Markov process $ z\left( t \right) = \left( {x\left( t \right),y\left( t \right)} \right) $, given the observations of the (multidimensional) process y(t) taken at discrete consecutive times with small time steps, is analytically investigated. On the base of that investigation the new algorithms for simulation of unobservable components, x(t), and the new algorithms of nonlinear filtering with the use of sequential Monte Carlo methods, or particle filters, are developed and suggested. The analytical investigation of observed quadratic variations is also developed. The new closed-form analytical formulae are obtained, which characterize dispersions of deviations of the observed quadratic variations and the accuracy of some estimates for x(t). As an illustrative example, estimation of volatility (for the problems of financial mathematics) is considered. The obtained new algorithms extend the range of applications of sequential Monte Carlo methods, or particle filters, beyond the hidden Markov models and improve their performance.