Financial matters

Kalman Filters

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Kalman offers an alternative approach to ARIMA, allowing an underlying forecasting model (message model) to be combined with other timely information (observation model). The message model may be any trading strategy, moving average. or regression approach. The observation model may be the floor broker’s opening calls, market liquidity’. or. in the case of existing foreign markets, earlier trading activity-all of which have been determined to have some overriding importance in forecasting.