Hidden Markov Models, Markov Chains, Markov Switching, Markov Auto Regression, Maximum Likelihood.
at time t. The residual error ε_t is simply the predicted rate subtracted from the observed rate. We’ll use the terms modeled mean and predicted mean interchangeably. We will further assume that we have used a really good regression model to calculate the modeled mean μ_cap_t. And therefore, the