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

Feedback control by online learning an inverse model

A model, predictor, or error estimator is often used by a feedback controller to control a plant. Creating such a model is difficult when the plant exhibits nonlinear behavior. In this paper, a novel online learning control framework is proposed that does not require explicit knowledge about the plant. This framework uses two learning modules, one for creating an inverse model, and the other for actually controlling the plant. Except for their inputs, they are identical. The inverse model learns by the exploration performed by the not yet fully trained controller, while the actual controller is based on the currently learned model. The proposed framework allows fast online learning of an accurate controller. The controller can be applied on a broad range of tasks with different dynamic characteristics. We validate this claim by applying our control framework on several control tasks: 1) the heating tank problem (slow nonlinear dynamics); 2) flight pitch control (slow linear dynamics); and 3) the balancing problem of a double inverted pendulum (fast linear and nonlinear dynamics). The results of these experiments show that fast learning and accurate control can be achieved. Furthermore, a comparison is made with some classical control approaches, and observations concerning convergence and stability are made

Measuring information-transfer delays

In complex networks such as gene networks, traffic systems or brain circuits it is important to understand how long it takes for the different parts of the network to effectively influence one another. In the brain, for example, axonal delays between brain areas can amount to several tens of milliseconds, adding an intrinsic component to any timing-based processing of information. Inferring neural interaction delays is thus needed to interpret the information transfer revealed by any analysis of directed interactions across brain structures. However, a robust estimation of interaction delays from neural activity faces several challenges if modeling assumptions on interaction mechanisms are wrong or cannot be made. Here, we propose a robust estimator for neuronal interaction delays rooted in an information-theoretic framework, which allows a model-free exploration of interactions. In particular, we extend transfer entropy to account for delayed source-target interactions, while crucially retaining the conditioning on the embedded target state at the immediately previous time step. We prove that this particular extension is indeed guaranteed to identify interaction delays between two coupled systems and is the only relevant option in keeping with Wiener’s principle of causality. We demonstrate the performance of our approach in detecting interaction delays on finite data by numerical simulations of stochastic and deterministic processes, as well as on local field potential recordings. We also show the ability of the extended transfer entropy to detect the presence of multiple delays, as well as feedback loops. While evaluated on neuroscience data, we expect the estimator to be useful in other fields dealing with network dynamics

Adaptive Neural Models of Queuing and Timing in Fluent Action

Temporal structure in skilled, fluent action exists at several nested levels. At the largest scale considered here, short sequences of actions that are planned collectively in prefrontal cortex appear to be queued for performance by a cyclic competitive process that operates in concert with a parallel analog representation that implicitly specifies the relative priority of elements of the sequence. At an intermediate scale, single acts, like reaching to grasp, depend on coordinated scaling of the rates at which many muscles shorten or lengthen in parallel. To ensure success of acts such as catching an approaching ball, such parallel rate scaling, which appears to be one function of the basal ganglia, must be coupled to perceptual variables, such as time-to-contact. At a fine scale, within each act, desired rate scaling can be realized only if precisely timed muscle activations first accelerate and then decelerate the limbs, to ensure that muscle length changes do not under- or over-shoot the amounts needed for the precise acts. Each context of action may require a much different timed muscle activation pattern than similar contexts. Because context differences that require different treatment cannot be known in advance, a formidable adaptive engine-the cerebellum-is needed to amplify differences within, and continuosly search, a vast parallel signal flow, in order to discover contextual "leading indicators" of when to generate distinctive parallel patterns of analog signals. From some parts of the cerebellum, such signals controls muscles. But a recent model shows how the lateral cerebellum, such signals control muscles. But a recent model shows how the lateral cerebellum may serve the competitive queuing system (in frontal cortex) as a repository of quickly accessed long-term sequence memories. Thus different parts of the cerebellum may use the same adaptive engine system design to serve the lowest and the highest of the three levels of temporal structure treated. If so, no one-to-one mapping exists between levels of temporal structure and major parts of the brain. Finally, recent data cast doubt on network-delay models of cerebellar adaptive timing.National Institute of Mental Health (R01 DC02852

Training Echo State Networks with Regularization through Dimensionality Reduction

In this paper we introduce a new framework to train an Echo State Network to predict real valued time-series. The method consists in projecting the output of the internal layer of the network on a space with lower dimensionality, before training the output layer to learn the target task. Notably, we enforce a regularization constraint that leads to better generalization capabilities. We evaluate the performances of our approach on several benchmark tests, using different techniques to train the readout of the network, achieving superior predictive performance when using the proposed framework. Finally, we provide an insight on the effectiveness of the implemented mechanics through a visualization of the trajectory in the phase space and relying on the methodologies of nonlinear time-series analysis. By applying our method on well known chaotic systems, we provide evidence that the lower dimensional embedding retains the dynamical properties of the underlying system better than the full-dimensional internal states of the network