FINANCIAL MARKET: STATE ANALYSIS (MARKOV MODELS)

Determining the transition probability of various states of the financial market is essential for assessing its fluctuations. There are numerous transitions in the market, dispersed in time. Since the exponential distribution has no memory, the future market outcome depends only on the current state of the market. It does not depend on when the last transition occurred and/or what the previous state was. The article demonstrates the estimated and predictive capabilities of the Markov method for analyzing the financial market. They are centered around four fundamental properties of the method under consideration: the ability to assess the current state of the market at any given time; the ability to analyze events «without memory», with an outcome depending only on the current state of the system; the possibility of exploring unobservable states and involving hidden market parameters in the analysis; the case of quantitative accounting of previously unquantifiable data, which made it possible to parameterize and apply calculation procedures for both qualitative and non-qualitative and unstructured information.