Abstract
We propose an evolutionary recursive algorithm, for the exact
windowed case, to estimate subset vector discrete lag (SVDL)
filters with a forgetting factor and an intercept variable. SVDL
filtering is demonstrated as a basis for constructing a
multi-layered polynomial neural network by Penm et al.
(2000) The new proposed time update recursions allow users to
update SVDL filters at consecutive time instants, and can show
evolutionary changes detected in filter structures. With this new
approach we are able to more effectively analyse complex
relationships where the relevant financial time series have been
generated from structures subject to evolutionary changes in their
environment. An illustration of these procedures is presented to
examine the integration between the Australian and the Japanese
bond markets, and the USA and the UK bond markets, changed over
the period. The proposed algorithms are also applicable to
full-order vector discrete lag (VDL) filtering with a forgetting
factor and an intercept.