Median Filter Smoothing

Median filter smoothing is a post-processing step applied to a model’s regime-signal sequence: each value is replaced by the median of a small window (e.g. k=6 in Bulla et al. 2010) of neighbouring values, which removes single-period spikes while preserving genuine regime changes. In regime-switching trading it exists specifically to suppress fugacious one-day flips of the inferred state that would otherwise generate excessive position changes and let Transaction Costs and Slippage erode the strategy’s edge. It is a turnover-control device rather than a forecasting improvement, and its necessity is itself evidence that raw regime signals trade too noisily to be profitable unsmoothed.

Connections

• Bulla et al. 2010 — uses_dataset, source: https://mpra.ub.uni-muenchen.de/21154/1/MPRA_paper_21154.pdf
• Transaction Costs and Slippage — relates, source: https://mpra.ub.uni-muenchen.de/21154/1/MPRA_paper_21154.pdf
• Viterbi Decoding — relates, source: https://mpra.ub.uni-muenchen.de/21154/1/MPRA_paper_21154.pdf