GARCH processes and the phenomenon of misleading and unambiguous signals
Beatriz Sousa; Morais, M. C. ; Yarema Okhrin; Wolfgang Schmid
Applied Stochastic Models in Business and Industry, 34 (2018), 667-681
In Finance it is quite usual to assume that a process behaves according to a previously specified target GARCH process. The impact of rumours or other events on this process can be frequently described by an outlier responsible for a short-lived shift in the process mean or by a sustained change in the process variance. This calls for the use of joint schemes for the process mean and variance. Since changes in the mean and in the variance require different actions from the traders/brokers, this paper provides an account on the probabilities of misleading and unambiguous signals (PMS and PUNS) of those joint schemes, thus adding insights on their out-of-control performance.