Fuzzy Logic and Its Uses in Finance: A Systematic Review Exploring Its Potential to Deal with Banking Crises

The major success of fuzzy logic in the field of remote control opened the door to its application in many other fields, including finance. However, there has not been an updated and comprehensive literature review on the uses of fuzzy logic in the financial field. For that reason, this study attempts to critically examine fuzzy logic as an effective, useful method to be applied to financial research and, particularly, to the management of banking crises. The data sources were Web of Science and Scopus, followed by an assessment of the records according to pre-established criteria and an arrangement of the information in two main axes: financial markets and corporate finance. A major finding of this analysis is that fuzzy logic has not yet been used to address banking crises or as an alternative to ensure the resolvability of banks while minimizing the impact on the real economy. Therefore, we consider this article relevant for supervisory and regulatory bodies, as well as for banks and academic researchers, since it opens the door to several new research axes on banking crisis analyses using artificial intelligence techniques

A literature review on the application of evolutionary computing to credit scoring

The last years have seen the development of many credit scoring models for assessing the creditworthiness of loan applicants. Traditional credit scoring methodology has involved the use of statistical and mathematical programming techniques such as discriminant analysis, linear and logistic regression, linear and quadratic programming, or decision trees. However, the importance of credit grant decisions for financial institutions has caused growing interest in using a variety of computational intelligence techniques. This paper concentrates on evolutionary computing, which is viewed as one of the most promising paradigms of computational intelligence. Taking into account the synergistic relationship between the communities of Economics and Computer Science, the aim of this paper is to summarize the most recent developments in the application of evolutionary algorithms to credit scoring by means of a thorough review of scientific articles published during the period 2000–2012.This work has partially been supported by the Spanish Ministry of Education and Science under grant TIN2009-14205 and the Generalitat Valenciana under grant PROMETEO/2010/028

European exchange trading funds trading with locally weighted support vector regression

In this paper, two different Locally Weighted Support Vector Regression (wSVR) algorithms are generated and applied to the task of forecasting and trading five European Exchange Traded Funds. The trading application covers the recent European Monetary Union debt crisis. The performance of the proposed models is benchmarked against traditional Support Vector Regression (SVR) models. The Radial Basis Function, the Wavelet and the Mahalanobis kernel are explored and tested as SVR kernels. Finally, a novel statistical SVR input selection procedure is introduced based on a principal component analysis and the Hansen, Lunde, and Nason (2011) model confidence test. The results demonstrate the superiority of the wSVR models over the traditional SVRs and of the v-SVR over the ε-SVR algorithms. We note that the performance of all models varies and considerably deteriorates in the peak of the debt crisis. In terms of the kernels, our results do not confirm the belief that the Radial Basis Function is the optimum choice for financial series

Exploring the synergistic potential of quantum annealing and gate model computing for portfolio optimization

Portfolio optimization is one of the most studied problems for demonstrating the near-term applications of quantum computing. However, large-scale problems cannot be solved on today's quantum hardware. In this work, we extend upon a study to use the best of both quantum annealing and gate-based quantum computing systems to enable solving large-scale optimization problems efficiently on the available hardware. The existing work uses a method called Large System Sampling Approximation (LSSA) that involves dividing the large problem into several smaller problems and then combining the multiple solutions to approximate the solution to the original problem. This paper introduces a novel technique to modify the sampling step of LSSA. We divide the portfolio optimization problem into sub-systems of smaller sizes by selecting a diverse set of assets that act as representatives of the entire market and capture the highest correlations among assets. We conduct tests on real-world stock data from the Indian stock market on up to 64 assets. Our experimentation shows that the hybrid approach performs at par with the traditional classical optimization methods with a good approximation ratio. We also demonstrate the effectiveness of our approach on a range of portfolio optimization problems of different sizes. We present the effects of different parameters on the proposed method and compare its performance with the earlier work. Our findings suggest that hybrid annealer-gate quantum computing can be a valuable tool for portfolio managers seeking to optimize their investment portfolios in the near future.Comment: 12 pages, 4 figures, 1 tabl

The Application of Artificial Intelligence in Project Management Research: A Review

The field of artificial intelligence is currently experiencing relentless growth, with innumerable models emerging in the research and development phases across various fields, including science, finance, and engineering. In this work, the authors review a large number of learning techniques aimed at project management. The analysis is largely focused on hybrid systems, which present computational models of blended learning techniques. At present, these models are at a very early stage and major efforts in terms of development is required within the scientific community. In addition, we provide a classification of all the areas within project management and the learning techniques that are used in each, presenting a brief study of the different artificial intelligence techniques used today and the areas of project management in which agents are being applied. This work should serve as a starting point for researchers who wish to work in the exciting world of artificial intelligence in relation to project leadership and management

Enhanced news sentiment analysis using deep learning methods

We explore the predictive power of historical news sentiments based on financial market performance to forecast financial news sentiments. We define news sentiments based on stock price returns averaged over one minute right after a news article has been released. If the stock price exhibits positive (negative) return, we classify the news article released just prior to the observed stock return as positive (negative). We use Wikipedia and Gigaword five corpus articles from 2014 and we apply the global vectors for word representation method to this corpus to create word vectors to use as inputs into the deep learning TensorFlow network. We analyze high-frequency (intraday) Thompson Reuters News Archive as well as the high-frequency price tick history of the Dow Jones Industrial Average (DJIA 30) Index individual stocks for the period between 1/1/2003 and 12/30/2013. We apply a combination of deep learning methodologies of recurrent neural network with long short-term memory units to train the Thompson Reuters News Archive Data from 2003 to 2012, and we test the forecasting power of our method on 2013 News Archive data. We find that the forecasting accuracy of our methodology improves when we switch from random selection of positive and negative news to selecting the news with highest positive scores as positive news and news with highest negative scores as negative news to create our training data set.Published versio