A Simplified Approach to Understanding the Kalman Filter Technique
University of Richmond - E. Claiborne Robins School of Business
Jonathan M. Godbey
Georgia State University - Department of Finance
December 21, 2007
The Kalman Filter is a time series estimation algorithm that is applied extensively in the field of engineering and recently (relative to engineering) in the field of finance and economics. However, presentations of the technique are somewhat intimidating despite the relative ease of generating the algorithm. This paper presents the Kalman Filter in a simplified manner and produces an example of an application of the algorithm in Excel. This scaled down version of the Kalman filter can be introduced in the (advanced) undergraduate classroom as well as the graduate classroom.
Number of Pages in PDF File: 24
Keywords: Kalman Filter, time series, EM algorithm, Excel, Pedagogy
JEL Classification: C22, C32, G13
Date posted: May 7, 2005 ; Last revised: April 17, 2008
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