Filtering of a Discrete-Time HMM-Driven Multivariate Ornstein-Uhlenbeck Model With Application to Forecasting Market Liquidity Regimes.

This paper investigates the modeling of risk due to market and funding liquidity by capturing the joint dynamics of three time series: the treasury-Eurodollar spread, the VIX, and a metric derived from the S&P 500 spread. We propose a two-regime mean-reverting model for explaining the behaviour of three time series, which mirror liquidity levels for financial markets. An expectation-maximisation a...