A sequential Monte Carlo approach to inference in multiple-equation Markov-switching models

2017 ◽  
Vol 33 (1) ◽  
pp. 126-140 ◽  
Author(s):  
Mark Bognanni ◽  
Edward Herbst
Keyword(s):  
Monte Carlo ◽  
Sequential Monte Carlo ◽  
Markov Switching ◽  
Monte Carlo Approach ◽  
Markov Switching Models ◽  
Switching Models

Using Markov-switching models with Markov chain Monte Carlo inference methods in agricultural commodities trading

2020 ◽  
Vol 24 (18) ◽  
pp. 13823-13836 ◽  
Author(s):  
Oscar V. De la Torre-Torres ◽  
Dora Aguilasocho-Montoya ◽  
José Álvarez-García ◽  
Biagio Simonetti
Keyword(s):  
Monte Carlo ◽  
Markov Chain ◽  
Markov Chain Monte Carlo ◽  
Markov Switching ◽  
Agricultural Commodities ◽  
Markov Switching Models ◽  
Switching Models ◽  
Inference Methods

scholarly journals A Markov-Switching VSTOXX Trading Algorithm for Enhancing EUR Stock Portfolio Performance

Mathematics ◽  
2021 ◽  
Vol 9 (9) ◽  
pp. 1030
Author(s):  
Oscar V. De la Torre-Torres ◽  
Evaristo Galeana-Figueroa ◽  
José Álvarez-García
Keyword(s):  
Markov Switching ◽  
Stock Index ◽  
Portfolio Performance ◽  
Trading Costs ◽  
Weighting Method ◽  
Treasury Bills ◽  
Markov Switching Models ◽  
Switching Models ◽  
Asset Portfolio ◽  
Stock Portfolio

In the present paper, we test the benefit of using Markov-Switching models and volatility futures diversification in a Euro-based stock portfolio. With weekly data of the Eurostoxx 50 (ESTOXX50) stock index, we forecasted the smoothed regime-specific probabilities at T + 1 and used them as the weighting method of a diversified portfolio in ESTOXX50 and ESTOSS50 volatility index (VSTOXX) futures. With the estimated smoothed probabilities from 9 July 2009 to 29 September 2020, we simulated the performance of three theoretical investors who paid different trading costs and invested in ESTOXX50 during calm periods (low volatility regime) or VSTOXX futures and the three-month German treasury bills in distressed or highly distressed periods (high and extreme volatility regimes). Our results suggest that diversification benefits hold in the short-term, but if a given investor manages a two-asset portfolio with ESTOXX50 and our simulated portfolios, the stock portfolio’s performance is enhanced significantly, in the long term, with the presence of trading costs. These results are of use to practitioners for algorithmic and active trading applications in ESTOXX50 ETFs and VSTOXX futures.

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