Consequences of using the probability of a false alarm as the false alarm measure
AbstractIn systems for on-line detection of regime shifts, a process is continually observed. Based on the data available an alarm is given when there is enough evidence of a change. There is a risk of a false alarm and here two different ways of controlling the false alarms are compared: a fixed average run length until the first false alarm and a fixed probability of any false alarm (fixed size). The two approaches are evaluated in terms of the timeliness of alarms. A system with a fixed size is found to have a drawback: the ability to detect a change deteriorates with the time of the change. Consequently, the probability of successful detection will tend to zero and the expected delay of a motivated alarm tends to infinity. This drawback is present even when the size is set to be very large (close to 1). Utility measures expressing the costs for a false or a too late alarm are used in the comparison. How the choice of the best approach can be guided by the parameters of the process and the different costs of alarms is demonstrated. The technique is illustrated by financial transactions of the Hang Seng Index.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Statistical Research Unit, Department of Economics, School of Business, Economics and Law, University of Gothenburg in its series Research Reports with number 2007:3.
Length: 20 pages
Date of creation: 01 Jan 2007
Date of revision:
Contact details of provider:
Postal: Statistical Research Unit, University of Gothenburg, Box 640, SE 40530 GÖTEBORG
Web page: http://www.statistics.gu.se/
Monitoring; Surveillance; Repeated decisions; Moving average; Shewhart method;
Find related papers by JEL classification:
- C10 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General - - - General
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Linus Schiöler) The email address of this maintainer does not seem to be valid anymore. Please ask Linus Schiöler to update the entry or send us the correct address.
If references are entirely missing, you can add them using this form.