Most statistical applications in finance require that the forecasting models be revised in response to the arrival of new information. This course develops the Dynamic Linear Model (DLM) as an updating model based upon Bayesian decision theory. Applications of the DLM including regressions, autoregressions, and exponential trend models will be covered. Special emphasis will be given to the development of intervention and monitoring systems and the use of simulation methodologies. Students not familiar with matrix algebra and elementary statistics should plan to make up the deficiency early in the course.
[(MSF 504 and MSF 505)]