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Control Charts and Multifactor Affine Term Structure Models

Author

Listed:
  • Konstantinos Bisiotis
  • Stelios Psarakis
  • Athanasios N. Yannacopoulos

Abstract

The aim of this work is the application of statistical process monitoring (SPM) methods, specifically control charts, for the detection of changes in the yield curve and the parameters governing multifactor affine term structure models (ATSMs). CUSUM and EWMA control chart schemes are constructed for various types of shifts in the yield curve. The paper presents both simulation and empirical examples for the detection of small and large shifts in the monitoring process. Also, we propose an empirical method for estimating the new target process and the control limit when a signal is given. The findings of this study confirm the effectiveness of the application of control charts in the term structure of bond yields. Also, in order to capture the change in the yield curve regardless the type, the size and the sign of the shift we suggest a combination of control chart procedures.

Suggested Citation

  • Konstantinos Bisiotis & Stelios Psarakis & Athanasios N. Yannacopoulos, 2025. "Control Charts and Multifactor Affine Term Structure Models," Applied Mathematical Finance, Taylor & Francis Journals, vol. 32(1), pages 30-89, January.
    • Handle: RePEc:taf:apmtfi:v:32:y:2025:i:1:p:30-89
    DOI: 10.1080/1350486X.2025.2544266
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