Sequential change point detection in ARMA-GARCH models

ABSTRACT

This study investigates a sequential procedure to detect changes in the parameter of ARMA-GARCH models. Following the test procedure by Berkes et al. [Sequential change-point detection in GARCH(p,q) models. Econ Theory. 2004;20:1140–1167], we introduce a stopping time for monitoring procedure based on quasi-likelihood score function of ARMA-GARCH model. The asymptotic properties of the monitoring procedure are established under the null and alternative hypotheses. We demonstrate the validity of the test procedure through simulation study. A real data application is provided for illustration.

KEYWORDS:

• Sequential test for parameter change
• sequential change detection
• score based test
• ARMA-GARCH models

2010 MATHEMATICS SUBJECT CLASSIFICATIONS:

• 62M10
• 62L10

Acknowledgments

We would like to thank the associate editor and the referee for carefully examining the paper and providing valuable comments that improved its quality.

Disclosure statement

No potential conflict of interest was reported by the author(s).

Additional information

Funding

This research was supported by Kyungpook National University Research Fund, 2018.