A Simplified Approach to Understanding the Kalman Filter Technique

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

Tom Arnold

University of Richmond - E. Claiborne Robins School of Business

Mark Bertus

Auburn University

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

Arnold, Tom 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

Thomas M. Arnold (Contact Author)

University of Richmond - E. Claiborne Robins School of Business ( email )

1 Gateway Drive
Richmond, VA 23173
United States
804-287-6399 (Phone)
804-289-8878 (Fax)

Mark Bertus

Auburn University ( email )

415 W Magnolia
Lowder rm 303
Auburn, AL 36849
United States

Jonathan M. Godbey

Georgia State University - Department of Finance ( email )

University Plaza
Atlanta, GA 30303-3083
United States

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