Department of Economics and Business Economics

A Martingale Decomposition of Discrete Markov Chains

Research output: Working paperResearch

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  • rp15_18

    Submitted manuscript, 618 KB, PDF document

  • Peter Reinhard Hansen, European University Institute, Denmark
We consider a multivariate time series whose increments are given from a homogeneous Markov chain. We show that the martingale component of this process can be extracted by a filtering method and establish the corresponding martingale decomposition in closed-form. This representation is useful for the analysis of time series that are confined to a grid, such as financial high frequency data.
Original languageEnglish
Place of publicationAarhus
PublisherInstitut for Økonomi, Aarhus Univeritet
Number of pages12
Publication statusPublished - 28 Apr 2015
SeriesCREATES Research Papers
Number2015-18

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