Unspecified distributions in single disorder problem

Wojciech Sarnowski and Krzysztof Szajowski

Applied Stochastic Models in Business and Industry, 2018, vol. 34, issue 5, 700-717

Abstract: The purpose of this article is to present the issue of algorithms of the change detection model for the political business cycle. Political business cycle issue is interesting in the context of the current political situation in Europe, ie, the progressive integration of the European Union countries and the wave of financial problems that affected the state, which has been regarded so far as economically stable. Monitoring of this phenomenon is characterized by the fact that we do not usually have full information about the behavior of business indexes before and after the change. It is assumed that we are observing a stochastic sequence whose mathematical model predicts a sudden change. The process is Markovian when the change moment is given. The initial problem of disorder detection is transformed to the optimal stopping of the observed sequence. In order to construct an algorithm for estimating the moment of change, we transform the task into an equivalent problem of optimal stopping based on the observed magnitude and some statistics. The analysis obtained from the transformation of the problem is the source of the change point estimation algorithms. The formula for the optimal decision functions is derived.

Date: 2018
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https://doi.org/10.1002/asmb.2317

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Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmbi:v:34:y:2018:i:5:p:700-717

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