We derive the filtering equation for Markovian systems undergoing homodyne measurement in the situation where the output processes being monitored are squeezed. The filtering theory applies to case where the system is driven by Fock noise (that, quan
tum input processes in a coherent state) and where the output is mixed with a squeezed signal. It also applies to the case of a system driven by squeezed noise, but here there is a physical restriction to emission/absorption coupling only. For the special case of a cavity mode where the dynamics is linear, we are able to derive explicitly the filtered estimate $pi_t (a)$ for the mode annihilator $a$ based on the homodyne quadrature observations up to time $t$.
