BERND PAPE Asset Allocation, Multivariate Position Based Trading ...

60 ACTA WASAENSIAmultipliers in the combinatorial framework, which may then be interpreted as a latentstate vector in a Markovian stochastic volatility process. Such Markovian chains allowfor volatility forecasting by Bayesian updating. The Markov-Switching Multifractal introducedby Calvet & Fisher (2003) allows even for maximum likelihood estimation byinterpreting the multipliers in the combinatorial framework as latent volatility statevariables in a regime-switching model with identical marginal distribution, but differenttransition probabilities for each factor.