[R-SIG-Finance] Kalman Filter + DLM Package in R

[nserdar]

This is Kalman Filter random walk process code :

library(dlm)

buildCAPM<-function(u){

	dlmModReg(rm,dV=exp(u[1]),dW=exp(u[2:3]))  # rm market

}

outMLE<-dlmMLE(rt,parm=rep(0,3),buildCAPM)  # rt return of indusrty

mod<-buildCAPM(outMLE$par)

outFilter<-dlmFilter(rt,mod)

mae<-mean(abs(outFilter$f)-rt)   # MAE

mse<-mean(((outFilter$f)-rt)^2) #MSE

What I am asking how to modify this code as Kalman Filter Mean Reverting

For example: 

R(it)= Alpha(it)+ Beta(it)R(mt)+ V(it) 

KF Mean Reverting 

Alpha(it)= Alphabar(i)+ phi* (Alpha(it-1)-Alphabar(i))+W(i1t) 
Beta(it)= Betabar(i)+ phi* (Beta(it-1)-Betahabar(i))+W(i2t) 

Regards,
Serdar





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