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• Predicting Market Data Using The Kalman Filter by R. Martinelli & N. Rhoads

  ARTICLE SYNOPSIS ...Predicting Market Data Using The Kalman Filter by R. Martinelli & N. Rhoads The Kalman filter is a two-stage algorithm that assumes there is a smooth trendline within the data that represents the true value of the market before being perturbed by market noise. Can this filter be used to forecast stock price movements? Figure 1 shows daily opens for one year (252 days) of Ford Motor Co. (F). According to modern financial engineering principles, market data such as this is considered to be Brownian motion, which means that the daily price changes form a white-noise process. White noise is a r...

AUTHOR: R. Martinelli & N. RhoadsDATE: JAN 2010SUBJECT: Quantitative Methods

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• Predicting Market Data Using The Kalman Filter, Pt 2 by R. Martinelli & N. Rhoads

  ARTICLE SYNOPSIS ...Predicting Market Data Using The Kalman Filter, Pt 2 by R. Martinelli & N. Rhoads Can the Kalman filter be used to predict future price movement? In this second part of this series we answer this question. Previously, we discussed the Kalman filter and the alpha indicator. This time, we study the accumulation of profit/loss through the fortune chart. We also backtest the filter and analyze the results. The profit/loss on day k may be written as: Pk = A Wk (yk/yk-1 ? 1) where the quantity in parentheses is the relative price-change, or return, on day k, A is the trade amount in dollars, an...

AUTHOR: R. Martinelli & N. RhoadsDATE: FEB 2010