Kalman Filter

[vwsteven]

Hello all,

I'm trying to estimate a Kalman Filter but I'm having some trouble setting up the right state-space model.

The point of the estimation is to estimate the price of 6 stocks, using two factors. One factor is a common factor (so its the same for all stocks) and the other is an individual one.

so the measurement equation should be: (i is the stock and t the time period)

p(t,i) = lambda1*FC(t) + lambda2*FI(t,i) + error(t,i)

the two factors should be defined in the space equation as AR(1) functions so
FC(t)= a1*FC(t-1), FI(t)=a2*FI(t-1)
where a is the autocorrelation parameter

can someone help me with this please?

[trubador]

http://forums.eviews.com/viewtopic.php?f=4&t=4808