Efficient Score Computation and Expectation-Maximization Algorithm in Regime-Switching Models

Abstract: This study proposes an efficient algorithm for score computation for regime-switching models, and derived from which, an efficient expectation-maximization (EM) algorithm. Different from existing algorithms, this algorithm does not rely on the forward-backward filtering for smoothed regime probabilities, and only involves forward computation. Moreover, the algorithm to compute score is readily extended to compute the Hessian matrix.