The field of signal processing provides a host of mathematical tools, such as linear system theory and Fourier transforms, which are used extensively in optics for the description of diffraction, spatial filtering, and holography. Optical filters can also benefit from the research already done in signal processing. In this project, digital signal processing concepts coupled with Linear System Theory are applied to the design and analysis of optical filters and temperature sensing. In particular, digital signal processing provides a readily available mathematical framework, the Z-transform, for the design of complex optical filters and allied applications. The relationship between digital filters and its optical counterpart is explored, and a brief historical overview of optical waveguide filters is given. Previously, spectrum analysis was the main application for optical filters. Recently, the demand for optical filters is increasing rapidly because of the deployment of commercial dense wavelength division multiplexed (DWDM) optical communication systems. With low loss optical fibers and broadband optical amplifiers, WDM systems have the potential to harness a huge bandwidth, and optical filters are essential to realizing this goal. In addition to traditional designs such as band-pass filters, new applications have emerged such as the need for filters to perform gain equalization and dispersion compensation and applications for WDM systems. As envisaged in 7th semester, this work has eventually opened new avenues in the field of sensing and may embark in to new horizon in optical Computing