The Applications Of Hidden Markov Model In Quantitative Investment

As a statistical analysis model,hidden Markov chain model is an extension of Markov chain and a special state-dependent mixed distribution model.It has a wide range of applications in different fields,such as speech decoding,biostatistics and so on.This paper mainly explores the application of hidden Markov chain model in the quantitative investment direction in the financial field.The main idea is that there are different states behind the price(or yield rate)of financial assets,and the state determines the price(yield rate),while this state is hidden and needs to be inferred(decode).As long as we can figure out the states and other relevant parameters,we can establish our own trading strategy.Here we use normal-hidden Markov chain for modeling according to stock data,and divide the market state into two types:bull market and bear market,and bear and bull state are transformed into each other.In any market situation,there’s going to be a market price that corresponds to a different normal distribution;We mainly carry out three parts of work:first,based on data to calculate the relevant parameters;Second,decoding the state of the market;Third,predict future conditions and prices and evaluate them against real prices.