Modeling Financial Time Series with Artificial Neural Networks

Financial time series convey the decisions and actions of a population of human actors over time. Econometric and regressive models have been developed in the past decades for analyzing these time series. More recently, biologically inspired artificial neural network models have been shown to overcome some of the main challenges of traditional techniques by better exploiting the non-linear, non-stationary, and oscillatory nature of noisy, chaotic human interactions. This review paper explores the options, benefits, and weaknesses of the various forms of artificial neural networks as compared with regression techniques in the field of financial time series analysis.CELEST, a National Science Foundation Science of Learning Center (SBE-0354378); SyNAPSE program of the Defense Advanced Research Project Agency (HR001109-03-0001

Modelling tourism demand to Spain with machine learning techniques. The impact of forecast horizon on model selection

This study assesses the influence of the forecast horizon on the forecasting performance of several machine learning techniques. We compare the fo recastaccuracy of Support Vector Regression (SVR) to Neural Network (NN) models, using a linear model as a benchmark. We focus on international tourism demand to all seventeen regions of Spain. The SVR with a Gaussian radial basis function kernel outperforms the rest of the models for the longest forecast horizons. We also find that machine learning methods improve their forecasting accuracy with respect to linear models as forecast horizons increase. This results shows the suitability of SVR for medium and long term forecasting.Peer ReviewedPostprint (published version

Modelling and trading the Greek stock market with gene expression and genetic programing algorithms

This paper presents an application of the gene expression programming (GEP) and integrated genetic programming (GP) algorithms to the modelling of ASE 20 Greek index. GEP and GP are robust evolutionary algorithms that evolve computer programs in the form of mathematical expressions, decision trees or logical expressions. The results indicate that GEP and GP produce significant trading performance when applied to ASE 20 and outperform the well-known existing methods. The trading performance of the derived models is further enhanced by applying a leverage filter

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

ARTIFICIAL NEURAL NETWORK APPLICATION IN GROSS DOMESTIC PRODUCT FORECASTING AN INDONESIA CASE

Gross Domestic Product (GDP) is a benchmark for economic production conditions of a country. Estimates of economic growth in the coming year in a country has important roles, among others as a benchmark in determining business plans for business entities, and the basis for devising government fiscal policy. Artificial Neural Network (ANN) has been increasingly recognized as a good forecasting tool in various fields. Its nature that can mimic the workings of the human brain makes it flexible for non-linear and nonparametric data. GDP growth forecasting techniques using ANN has been widely used in various countries, such as the United States, Canada, Germany, Austria, Iran, China, Japan and others. In Indonesia, forecasting of GDP is only done by government institutions, namely National Planning Board, using macroeconomic model. In this study, ANN is used as a tool for forecasting GDP growth in Indonesia, using some variables, such as GDP growth in the two previous periods, population growth rate, inflation, exchange rate and political stability and security conditions in Indonesia. Results from this study indicate that ANN forecasts GDP relatively better than the one issued by the government. Further study would be to use ANN to predict other economic indicators. Keywords: GDP growth, ANN, Forecastin

Forecasting time series by means of evolutionary algorithms

Proceeding of: 8th International Conference in Parallel Problem Solving from Nature - PPSN VIII , Birmingham, UK, September 18-22, 2004.The time series forecast is a very complex problem, consisting in predicting the behaviour of a data series with only the information of the previous sequence. There is many physical and artificial phenomenon that can be described by time series. The prediction of such phenomenon could be very complex. For instance, in the case of tide forecast, unusually high tides, or sea surges, result from a combination of chaotic climatic elements in conjunction with the more normal, periodic, tidal systems associated with a particular area. Too much variables influence the behaviour of the water level. Our problem is not only to find prediction rules, we also need to discard the noise and select the representative data. Our objective is to generate a set of prediction rules. There are many methods tying to achieve good predictions. In most of the cases this methods look for general rules that are able to predict the whole series. The problem is that usually the time series has local behaviours that dont allow a good level of prediction when using general rules. In this work we present a method for finding local rules able to predict only some zones of the series but achieving better level prediction. This method is based on the evolution of set of rules genetically codified, and following the Michigan approach. For evaluating the proposal, two different domains have been used: an artificial domain widely use in the bibliography (Mackey-Glass series) and a time series corresponding to a natural phenomenon, the water level in Venice Lagoon.Investigation supported by the Spanish Ministry of Science and Technology through the TRACER project under contract TIC2002-04498-C05-

Chemical and biological reactions of solidification of peat using ordinary portland cement (OPC) and coal ashes

Construction over peat area have often posed a challenge to geotechnical engineers. After decades of study on peat stabilisation techniques, there are still no absolute formulation or guideline that have been established to handle this issue. Some researchers have proposed solidification of peat but a few researchers have also discovered that solidified peat seemed to decrease its strength after a certain period of time. Therefore, understanding the chemical and biological reaction behind the peat solidification is vital to understand the limitation of this treatment technique. In this study, all three types of peat; fabric, hemic and sapric were mixed using Mixing 1 and Mixing 2 formulation which consisted of ordinary Portland cement, fly ash and bottom ash at various ratio. The mixtures of peat-binder-filler were subjected to the unconfined compressive strength (UCS) test, bacterial count test and chemical elemental analysis by using XRF, XRD, FTIR and EDS. Two pattern of strength over curing period were observed. Mixing 1 samples showed a steadily increase in strength over curing period until Day 56 while Mixing 2 showed a decrease in strength pattern at Day 28 and Day 56. Samples which increase in strength steadily have less bacterial count and enzymatic activity with increase quantity of crystallites. Samples with lower strength recorded increase in bacterial count and enzymatic activity with less crystallites. Analysis using XRD showed that pargasite (NaCa2[Mg4Al](Si6Al2)O22(OH)2) was formed in the higher strength samples while in the lower strength samples, pargasite was predicted to be converted into monosodium phosphate and Mg(OH)2 as bacterial consortium was re-activated. The Michaelis�Menten coefficient, Km of the bio-chemical reaction in solidified peat was calculated as 303.60. This showed that reaction which happened during solidification work was inefficient. The kinetics for crystallite formation with enzymatic effect is modelled as 135.42 (1/[S] + 0.44605) which means, when pargasite formed is lower, the amount of enzyme secretes is higher

Nonlinear Combination of Financial Forecast with Genetic Algorithm

Complexity in the financial markets requires intelligent forecasting models for return volatility. In this paper, historical simulation, GARCH, GARCH with skewed student-t distribution and asymmetric normal mixture GRJ-GARCH models are combined with Extreme Value Theory Hill by using artificial neural networks with genetic algorithm as the combination platform. By employing daily closing values of the Istanbul Stock Exchange from 01/10/1996 to 11/07/2006, Kupiec and Christoffersen tests as the back-testing mechanisms are performed for forecast comparison of the models. Empirical findings show that the fat-tails are more properly captured by the combination of GARCH with skewed student-t distribution and Extreme Value Theory Hill. Modeling return volatility in the emerging markets needs “intelligent” combinations of Value-at-Risk models to capture the extreme movements in the markets rather than individual model forecast.Forecast combination; Artificial neural networks; GARCH models; Extreme value theory; Christoffersen test

Forecasting foreign exchange rates with adaptive neural networks using radial basis functions and particle swarm optimization

The motivation for this paper is to introduce a hybrid Neural Network architecture of Particle Swarm Optimization and Adaptive Radial Basis Function (ARBF-PSO), a time varying leverage trading strategy based on Glosten, Jagannathan and Runkle (GJR) volatility forecasts and a Neural Network fitness function for financial forecasting purposes. This is done by benchmarking the ARBF-PSO results with those of three different Neural Networks architectures, a Nearest Neighbors algorithm (k-NN), an autoregressive moving average model (ARMA), a moving average convergence/divergence model (MACD) plus a naïve strategy. More specifically, the trading and statistical performance of all models is investigated in a forecast simulation of the EUR/USD, EUR/GBP and EUR/JPY ECB exchange rate fixing time series over the period January 1999 to March 2011 using the last two years for out-of-sample testing

Design and development of an emulated human cognition using novel 3D neural networks

This paper describes the development of an Emulated Human Cognition (EHC) which is designed and based on a replicated human brain with a right- and a left- hand lobe, one a deductive side and the other a generic one. Right-hand lobe consists of a newly designed Artificial Neural Network (ANN) with a multi-hidden layer topology. Left-hand lobe is a newly designed 3-dimensional cellular neural network. The input variables presented to the EHC are immediately analysed for it to decide which lobe should be activated. The EHC, when fully developed, has almost an unlimited memory capacity and is capable of immediate recall of any data in its almost unlimited memory locations. EHC has been used in several applications where neural networks have been used to establish relationship between two or more sets of variables. In this paper the EHC has been used to forecast demand for a given product