Forecasting with non-homogeneous hidden Markov models |
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Authors: | Loukia Meligkotsidou Petros Dellaportas |
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Institution: | 1.Department of Mathematics,University of Athens,Athens,Greece;2.Department of Statistics,Athens University of Economics and Business,Athens,Greece |
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Abstract: | We present a Bayesian forecasting methodology of discrete-time finite state-space hidden Markov models with non-constant transition
matrix that depends on a set of exogenous covariates. We describe an MCMC reversible jump algorithm for predictive inference,
allowing for model uncertainty regarding the set of covariates that affect the transition matrix. We apply our models to interest
rates and we show that our general model formulation improves the predictive ability of standard homogeneous hidden Markov
models. |
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Keywords: | |
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