Hidden Markov Models, Markov Chains, Markov Switching, Markov Auto Regression, Maximum Likelihood.
residual error ε_t can be assumed to be homoskedastic i.e. its variance does not vary with the mean, and furthermore, ε_t is normally distributed around a zero mean and some variance σ². In notation form, ε_t is an N(0, σ²) distributed random variable. Let us now return to μ_cap_t. Since μ_cap_t is