Markov chains in modelling of the Russian financial market

Abstract

We use Markov chains models for the analysis of Russian stock market. First problem studied in the chapter is concerned with multiperiod portfolio optimization.We show that known approaches applied for the Russian stock market produce the phenomena of nonstability and propose a new method in order to smooth it. The second problem concerns the structural changes in the Russian stock market after the financial crisis of 2008. We propose a hidden Markov chain model to analyze structural changes and apply it to the Russian stock market.