Abstract
This study investigates a monitoring procedure that aims to capture a change of model parameters in time series regarding the volatility index (VIX). To solve this problem, we harness a cumulative sum (CUSUM) process using residuals designed to simultaneously detect changes in both the conditional mean and variance of the time series. To obtain the control limits, limit theorems are used for the CUSUM monitoring process. Thereafter, the scheme of statistical process control (SPC) is applied to the time series of the log-returns of VIX by fitting it with an ARMA-GARCH model to obtain further knowledge regarding the financial market’s participants. Our study indicates the proposed monitoring process’ potential as a tool to allude to imminent significant market crashes.
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