Handling Structural Shifts, Outliers and Heavy-Tailed Distributions in State Space Time Series Models
James Durbin & Magdalena Cordero
RR 93/03
ABSTRACT
Time series containing abrupt structural shifts or outliers or both are considered. Techniques are
developed for handling these using mixtures of densities, one component of which is a Gaussian
density with a large variance. State space models are fitted to the series. The state vectors are
estimated by the mode of their posterior density given the observations. The mode is found by
Gauss-Newton iteration using Kalman filtering and smoothing. Three approximations to the
likelihood function for estimating the hyperparameters are given. The techniques are illustrated
by applying them to simulated and real series. The treatment is extended to deal with heavy-
tailed densities.