FINANCIAL MARKET PRICE ESTIMATION WITH KALMAN FILTERS

In financial market trading, Kalman Filters are also extensively used to produce estimates of prices and correlations. They use a timeframe of observed noisy prices to create a price estimate.

In this case study, I:

• Designed a Kalman estimator to replace moving average signals

• Used a Kalman filter to estimate regression coefficients

Kalman Filters are typically used in momentum trading strategies where the trading signal is generated by a moving average crossover. They are also used to dynamically adjust the hedge ratio in a mean reverting trading strategy.