Documentation

## Estimate Time-Invariant State-Space Model

This example shows how to generate data from a known model, specify a state-space model containing unknown parameters corresponding to the data generating process, and then fit the state-space model to the data.

Suppose that a latent process is this AR(1) process

`${x}_{t}=0.5{x}_{t-1}+{u}_{t},$`

where ${u}_{t}$ is Gaussian with mean 0 and standard deviation 1.

Generate a random series of 100 observations from ${x}_{t}$, assuming that the series starts at 1.5.

```T = 100; ARMdl = arima('AR',0.5,'Constant',0,'Variance',1); x0 = 1.5; rng(1); % For reproducibility x = simulate(ARMdl,T,'Y0',x0);```

Suppose further that the latent process is subject to additive measurement error as indicated in the equation

`${y}_{t}={x}_{t}+{\epsilon }_{t},$`

where ${\epsilon }_{t}$ is Gaussian with mean 0 and standard deviation 0.1.

Use the random latent state process (`x`) and the observation equation to generate observations.

`y = x + 0.1*randn(T,1);`

Together, the latent process and observation equations compose a state-space model. Supposing that the coefficients and variances are unknown parameters, the state-space model is

`$\begin{array}{c}{x}_{t}=\varphi {x}_{t-1}+{\sigma }_{1}{u}_{t}\\ {y}_{t}={x}_{t}+{\sigma }_{2}{\epsilon }_{t}.\end{array}$`

Specify the state-transition coefficient matrix. Use `NaN` values for unknown parameters.

`A = NaN;`

Specify the state-disturbance-loading coefficient matrix.

`B = NaN;`

Specify the measurement-sensitivity coefficient matrix.

`C = 1;`

Specify the observation-innovation coefficient matrix

`D = NaN;`

Specify the state-space model using the coefficient matrices. Also, specify the initial state mean, variance, and distribution (which is stationary).

```Mean0 = 0; Cov0 = 10; StateType = 0; Mdl = ssm(A,B,C,D,'Mean0',Mean0,'Cov0',Cov0,'StateType',StateType);```

`Mdl` is an `ssm` model. Verify that the model is correctly specified using the display in the Command Window.

Pass the observations to estimate to estimate the parameter. Set a starting value for the parameter to `params0`. ${\sigma }_{1}$ and ${\sigma }_{2}$ must be positive, so set the lower bound constraints using the `'lb'` name-value pair argument. Specify that the lower bound of $\varphi$ is `-Inf`.

```params0 = [0.9; 0.5; 0.1]; EstMdl = estimate(Mdl,y,params0,'lb',[-Inf; 0; 0])```
```Method: Maximum likelihood (fmincon) Sample size: 100 Logarithmic likelihood: -140.532 Akaike info criterion: 287.064 Bayesian info criterion: 294.879 | Coeff Std Err t Stat Prob ------------------------------------------------- c(1) | 0.45425 0.19870 2.28612 0.02225 c(2) | 0.89013 0.30359 2.93205 0.00337 c(3) | 0.38751 0.57857 0.66976 0.50301 | | Final State Std Dev t Stat Prob x(1) | 1.52989 0.35621 4.29496 0.00002 ```
```EstMdl = State-space model type: ssm State vector length: 1 Observation vector length: 1 State disturbance vector length: 1 Observation innovation vector length: 1 Sample size supported by model: Unlimited State variables: x1, x2,... State disturbances: u1, u2,... Observation series: y1, y2,... Observation innovations: e1, e2,... State equation: x1(t) = (0.45)x1(t-1) + (0.89)u1(t) Observation equation: y1(t) = x1(t) + (0.39)e1(t) Initial state distribution: Initial state means x1 0 Initial state covariance matrix x1 x1 10 State types x1 Stationary ```

`EstMdl` is an `ssm` model. The results of the estimation appear in the Command Window, contain the fitted state-space equations, and contain a table of parameter estimates, their standard errors, t statistics, and p-values.

You can use or display, for example the fitted state-transition matrix using dot notation.

`EstMdl.A`
```ans = 0.4543 ```

Pass `EstMdl` to `forecast` to forecast observations, or to `simulate` to conduct a Monte Carlo study.

Download ebook