Detection of changes in a random financial sequence with a stable distribution

Dong Han, Fugee Tsung, Yanting Li and Jinguo Xian

Journal of Applied Statistics, 2010, vol. 37, issue 7, 1089-1111

Abstract: Quick detection of unanticipated changes in a financial sequence is a critical problem for practitioners in the finance industry. Based on refined logarithmic moment estimators for the four parameters of a stable distribution, this article presents a stable-distribution-based multi-CUSUM chart that consists of several CUSUM charts and detects changes in the four parameters in an independent and identically distributed random sequence with the stable distribution. Numerical results of the average run lengths show that the multi-CUSUM chart is superior (robust and quick) on the whole to a single CUSUM chart in detecting the shift change of the four parameters. A real example that monitors changes in IBM's stock returns is used to demonstrate the performance of the proposed method.

Keywords: logarithmic moment estimators; multi-CUSUM charts; detection of changes; random sequence with stable distribution (search for similar items in EconPapers)
Date: 2010
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Citations: View citations in EconPapers (3)

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DOI: 10.1080/02664760902914433

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