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

Predicting Intraday Financial Market Dynamics Using Takens\u27 Vectors; Incorporating Causality Testing and Machine Learning Techniques

Traditional approaches to predicting financial market dynamics tend to be linear and stationary, whereas financial time series data is increasingly nonlinear and non-stationary. Lately, advances in dynamical systems theory have enabled the extraction of complex dynamics from time series data. These developments include theory of time delay embedding and phase space reconstruction of dynamical systems from a scalar time series. In this thesis, a time delay embedding approach for predicting intraday stock or stock index movement is developed. The approach combines methods of nonlinear time series analysis with those of causality testing, theory of dynamical systems and machine learning (artificial neural networks). The approach is then applied to the Standard and Poors Index, and the results from our method are compared to traditional methods applied to the same data set

NDVI Short-Term Forecasting Using Recurrent Neural Networks

In this paper predictions of the Normalized Difference Vegetation Index (NDVI) data recorded by satellites over Ventspils Municipality in Courland, Latvia are discussed. NDVI is an important variable for vegetation forecasting and management of various problems, such as climate change monitoring, energy usage monitoring, managing the consumption of natural resources, agricultural productivity monitoring, drought monitoring and forest fire detection. Artificial Neural Networks (ANN) are computational models and universal approximators, which are widely used for nonlinear, non-stationary and dynamical process modeling and forecasting. In this paper Elman Recurrent Neural Networks (ERNN) are used to make one-step-ahead prediction of univariate NDVI time series

Neural networks and non-parametric methods for improving real-time flood forecasting through conceptual hydrological models

International audienceTime-series analysis techniques for improving the real-time flood forecasts issued by a deterministic lumped rainfall-runoff model are presented. Such techniques are applied for forecasting the short-term future rainfall to be used as real-time input in a rainfall-runoff model and for updating the discharge predictions provided by the model. Along with traditional linear stochastic models, both stationary (ARMA) and non-stationary (ARIMA), the application of non-linear time-series models is proposed such as Artificial Neural Networks (ANNs) and the ?nearest-neighbours' method, which is a non-parametric regression methodology. For both rainfall forecasting and discharge updating, the implementation of each time-series technique is investigated and the forecasting schemes which perform best are identified. The performances of the models are then compared and the improvement in the efficiency of the discharge forecasts achievable is demonstrated when i) short-term rainfall forecasting is performed, ii) the discharge is updated and iii) both rainfall forecasting and discharge updating are performed in cascade. The proposed techniques, especially those based on ANNs, allow a remarkable improvement in the discharge forecast, compared with the use of heuristic rainfall prediction approaches or the not-updated discharge forecasts given by the deterministic rainfall-runoff model alone

Electricity load forecasting with artificial neural networks

Artificial neural networks are powerful tools for time series forecasting. The problem addressed in this article is to do multi-step prediction of a stationary time series, and to find the associated prediction limits. Artificial neural network models for time series are non-linear. However, results that are applicable to linear models are sometimes mistakenly applied to non-linear models. One example where this is observed is in multi-step forecasting. A bootstrap method is proposed to calculate one- and multi-step predictions and prediction limits. The results are applied to an electricity load time series as well as to a pure autoregressive time series.Kunsmatige neurale netwerke is kragtige instrumente vir tydreeksvoorspelling. In hierdie artikel word multistap-vooruitberaming van ‘n stasionêre tydreeks en die gepaardgaande vertroueinterval behandel. Resultate wat slegs geldig is vir lineêre modelle word soms verkeerdelik op neurale netwerkmodelle toegepas. ‘n Voorbeeld hiervan kom in multistap-voorspelling voor. ‘n Skoenlusmetode, word voorgestel waarvolgens eenstap- en multistap- voorspellings en vertroueintervalle bereken kan word. Die resultate word op ‘n elektrisiteitslastydreeks en op ‘n suiwer outoregressiewe tydreeks toegepas.http://sajie.journals.ac.z

An Adaptive Retraining Method for the Exchange Rate Forecasting

The paper advances an original artificial intelligence-based mechanism for specific economic predictions. The time series under discussion are non-stationary; therefore the distribution of the time series changes over time. The algorithm establishes how a viable structure of an artificial neural network (ANN) at a previous moment of time could be retrained in an efficient manner, in order to support modifications in a complex input-output function of financial forecasting. A "remembering process" for the former knowledge achieved in the previous learning phase is used to enhance the accuracy of the predictions. The results show that the first training (which includes the searching phase for the optimal architecture) always takes a relatively long time, but then the system can be very easily retrained, as there are no changes in the structure. The advantage of the retraining procedure is that some relevant aspects are preserved (remembered) not only from the immediate previous training phase, but also from the previous but one phase, and so on. A kind of slow forgetting process also occurs; thus it is much easier for the ANN to remember specific aspects of the previous training instead of the first training. The experiments reveal the high importance of the retraining phase as an upgrading/updating process and the effect of ignoring it, as well. There has been a decrease in the test error when successive retraining phases were performed.Neural Networks, Exchange Rate, Adaptive Retraining, Delay Vectors, Iterative Simulation

Time series forecasting with the WARIMAX-GARCH method

It is well-known that causal forecasting methods that include appropriately chosen Exogenous Variables (EVs) very often present improved forecasting performances over univariate methods. However, in practice, EVs are usually difficult to obtain and in many cases are not available at all. In this paper, a new causal forecasting approach, called Wavelet Auto-Regressive Integrated Moving Average with eXogenous variables and Generalized Auto-Regressive Conditional Heteroscedasticity (WARIMAX-GARCH) method, is proposed to improve predictive performance and accuracy but also to address, at least in part, the problem of unavailable EVs. Basically, the WARIMAX-GARCH method obtains Wavelet “EVs” (WEVs) from Auto-Regressive Integrated Moving Average with eXogenous variables and Generalized Auto-Regressive Conditional Heteroscedasticity (ARIMAX-GARCH) models applied to Wavelet Components (WCs) that are initially determined from the underlying time series. The WEVs are, in fact, treated by the WARIMAX-GARCH method as if they were conventional EVs. Similarly to GARCH and ARIMA-GARCH models, the WARIMAX-GARCH method is suitable for time series exhibiting non-linear characteristics such as conditional variance that depends on past values of observed data. However, unlike those, it can explicitly model frequency domain patterns in the series to help improve predictive performance. An application to a daily time series of dam displacement in Brazil shows the WARIMAX-GARCH method to remarkably outperform the ARIMA-GARCH method, as well as the (multi-layer perceptron) Artificial Neural Network (ANN) and its wavelet version referred to as Wavelet Artificial Neural Network (WANN) as in [1], on statistical measures for both in-sample and out-of-sample forecasting