NONLINEAR PHENOMENA IN COMPLEX SYSTEMS
An Interdisciplinary Journal

2010, Vol.13, No.3, pp.267-276


Information Geometry of a Regime-Switching Model with Time-Varying Parameters.
Angela De Sanctis

In this paper we give a geometrical interpretation of regime-switching models when the changing mechanism between the states is governed by an unobservable Markov process. In particular we consider a stochastic two-regimes model of price behavior with time-varying parameters and we prove that the space of the conditional probability distributions is an exponential family where the information at the previous time is an hidden variable. Analogously to the neural case, we obtain a network trained by various input signals and corresponding output behaviors. This mechanism has been remarked as the universal way for the transfer of the information. We also deduce that in this case (EM) and (em) Algorithms are equivalent.
Key words: regime-switching models, information geometry, neural networks, (em) and (em) algorithms

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