The Kalman Filter in Finance

A non-technical introduction to the question of modeling with time-varying parameters, using the beta coefficient from Financial Economics as the main example. After a brief introduction to this coefficient for those not versed in finance, the book presents a number of rather well known tests for constant coefficients and then performs these tests on data from the Skholm Exchange. The Kalman filter is then introduced and a simple example is used to demonstrate the power of the filter. The f...