Michal Nánási, Tomáš Vinař, Broňa Brejová. Probabilistic Approaches to Alignment with Tandem Repeats. In Aaron Darling, Jens Stoye, ed., Algorithms in Bioinformatics, 13th International Workshop (WABI), 8126 volume of Lecture Notes in Computer Science, pp. 287-299 , 2013. Springer.

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We propose a simple tractable pair hidden Markov model for pairwise sequence
alignment that accounts for the presence of short tandem repeats. Using the
 framework of gain functions, we design several optimization criteria for 
decoding this model and describe the resulting decoding algorithms, ranging 
from the traditional Viterbi and posterior decoding to block-based decoding 
algorithms specialized for our model. We compare the accuracy of individual 
decoding algorithms on simulated data and find our approach superior to the 
classical three-state pair HMM in simulations.