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On the Application of SPC in Finance

In: Frontiers in Statistical Quality Control 9

Author

Listed:
  • Vasyl Golosnoy

    (University of Kiel, Institute of Statistics and Econometrics)

  • Iryna Okhrin

    (European University Viadrina, Department of Statistics)

  • Sergiy Ragulin

    (European University Viadrina, Department of Statistics)

  • Wolfgang Schmid

    (European University Viadrina, Department of Statistics)

Abstract

Summary A financial analyst is interested in a fast on-line detection of changes in the optimal portfolio composition. Although this is a typical sequential problem the majority of papers in financial literature ignores this fact and handles it in a non-sequential way. This paper deals with the problem of monitoring the weights of the global minimum variance portfolio (GMVP). We consider several control charts based on the estimated GMVP weights as well as on other closely related characteristic processes. Different types of EWMA and CUSUM control schemes are applied for our purpose. The behavior of the schemes is investigated within an extensive Monte Carlo simulation study. The average run length criterion serves as a comparison measure for the discussed charts.

Suggested Citation

  • Vasyl Golosnoy & Iryna Okhrin & Sergiy Ragulin & Wolfgang Schmid, 2010. "On the Application of SPC in Finance," Springer Books, in: Hans-Joachim Lenz & Peter-Theodor Wilrich & Wolfgang Schmid (ed.), Frontiers in Statistical Quality Control 9, pages 119-130, Springer.
    • Handle: RePEc:spr:sprchp:978-3-7908-2380-6_8
    DOI: 10.1007/978-3-7908-2380-6_8
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