A Simplified Approach to Understanding the Kalman Filter Technique

Arnold, Tom; Bertus, Mark; Godbey, Jonathan M.

doi:10.2139/ssrn.715301

A Simplified Approach to Understanding the Kalman Filter Technique

24 Pages Posted: 7 May 2005 Last revised: 17 Apr 2008

See all articles by Tom Arnold

Tom Arnold

University of Richmond - E. Claiborne Robins School of Business

Jonathan M. Godbey

Georgia State University - Department of Finance

Date Written: December 21, 2007

Abstract

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.

Keywords: Kalman Filter, time series, EM algorithm, Excel, Pedagogy

JEL Classification: C22, C32, G13

Suggested Citation: Suggested Citation

Arnold, Thomas M. and Bertus, Mark and Godbey, Jonathan M., A Simplified Approach to Understanding the Kalman Filter Technique (December 21, 2007). Available at SSRN: https://ssrn.com/abstract=715301 or http://dx.doi.org/10.2139/ssrn.715301