[R-SIG-Finance] Estimating a one-factor model using the DLM package

[Paul Teetor]

Hannu,

The MARSS package could solve your problem, but it seems like over-kill for a simple model like this.

I wrote some R code to demonstrate using dlm to fit your model. You can see the code here.

http://bit.ly/spreadModel-dlm

The code fits all three parameters: a, b, and c; plus the variances and initial value.

I did not have much time to test the code, but it seems to run correctly. To use dlm, I
had to put your model into this matrix form:

#                  _    _
#                 |      |
#   y[t] = [a, b] * |   1  | + u[t]
#                 |      |
#                 | s[t] |
#                 |_    _|
#
#  _    _     _    _     _      _     _    _
#   |      |   |      |   |        |   |      |
#   |   1  |   | 1  0 |   |   1    |   |   0  |
#   |      |  =  |      | * |        | + |      |
#   | s[t] |   | 0  c |   | s[t-1] |   | v[t] |
#   |_    _|   |_    _|   |_      _|   |_    _|
#

Good luck. I hope your model works well.

Paul


 
Paul Teetor, Elgin, IL  USA
http://quantdevel.com/public


On Tuesday, February 7, 2017 10:57 AM, Hannu Kahra <hkahra at gmail.com> wrote:



I specify the problem more clearly. My model is

y(t) = a + b*s(t) + u(t)
s(t) = c*s(t-1) + v(t)

that is a stochastic linear trend model in the DLM package obtained by
setting dlmModPoly(order = 2). The parameters b and c are fixed to 1 by
construction. In my problem I can allow b = 1, but I would like to estimate
c in the state equation. In other applications, I want to estimate
parameter b in the signal equation, as well.

I have had a look at the MARSS package and it seems that b and c can be
free parameters in estimation.

Hannu

On Tue, Feb 7, 2017 at 3:53 PM, ce <zadig_1 at excite.com> wrote:

>
> Not sure what you want to do but dlmMLE function would estimate some
> parameters to start, and dlmFilter and dlmForecast would predict expected
> values. DLM would need some study .
> Documents in https://cran.r-project.org/package=dlm are a good start ,
> also the book "Dynamic Linear Models with R",  ISBN 978-0-387-77237-0
> e-ISBN 978-0-387-77238-7
>
> -----Original Message-----
> From: "Hannu Kahra" [hkahra at gmail.com]
> Date: 02/05/2017 11:19 AM
> To: r-sig-finance at r-project.org
> Subject: [R-SIG-Finance] Estimating a one-factor model using the DLM
> package
>
> Hi,
>
> I am trying to estimate a one-factor model of the spread y(t) between two
> interest rates
>
> y(t) = a + b*s(t) + u(t)
> s(t) = c*s(t-1) + v(t)
>
> using the DLM package in R. Is it possible to estimate the parameters a, b,
> c, and var(u(t)). Var(v(t)) = 1.
>
> I have EViews code for that and I want to replicate it using R.
>
> Hannu
>
>         [[alternative HTML version deleted]]
>
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>
>
>
>

    [[alternative HTML version deleted]]

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