Quasi-exact Approximation of Hidden Markov Chain Filters

Abstract

This paper studies the application of exact simulation methods for multi-dimensional multiplicative noise stochastic differential equations to filtering. Stochastic differential equations with multiplicative noise naturally occur as Zakai equation in hidden Markov chain filtering. The paper proposes a quasi-exact approximation method for hidden Markov chain filters, which can be applied when discrete time approximations, such as the Euler scheme, may fail in practice.stochastic differential equations; Zakai equation; quasi-exact approximation; hidden Markov chain filtering