Forecasting Long-Term Government Bond Yields: An Application of Statistical and AI Models

This paper evaluates several artificial intelligence and classical algorithms on their ability of forecasting the monthly yield of the US 10-year Treasury bonds from a set of four economic indicators. Due to the complexity of the prediction problem, the task represents a challenging test for the algorithms under evaluation. At the same time, the study is of particular significance for the important and paradigmatic role played by the US market in the world economy. Four data-driven artificial intelligence approaches are considered, namely, a manually built fuzzy logic model, a machine learned fuzzy logic model, a self-organising map model and a multi-layer perceptron model. Their performance is compared with the performance of two classical approaches, namely, a statistical ARIMA model and an econometric error correction model. The algorithms are evaluated on a complete series of end-month US 10-year Treasury bonds yields and economic indicators from 1986:1 to 2004:12. In terms of prediction accuracy and reliability of the modelling procedure, the best results are obtained by the three parametric regression algorithms, namely the econometric, the statistical and the multi-layer perceptron model. Due to the sparseness of the learning data samples, the manual and the automatic fuzzy logic approaches fail to follow with adequate precision the range of variations of the US 10-year Treasury bonds. For similar reasons, the self-organising map model gives an unsatisfactory performance. Analysis of the results indicates that the econometric model has a slight edge over the statistical and the multi-layer perceptron models. This suggests that pure data-driven induction may not fully capture the complicated mechanisms ruling the changes in interest rates. Overall, the prediction accuracy of the best models is only marginally better than the prediction accuracy of a basic one-step lag predictor. This result highlights the difficulty of the modelling task and, in general, the difficulty of building reliable predictors for financial markets.interest rates; forecasting; neural networks; fuzzy logic.

The Importance of the Wording of the ECB

This paper analyses the ECB communication, focusing in particular on its transparency dimension. We posit that if the ECB is transparent about its future policy decisions, then we should be able to forecast fairly well its future interest rate setting behaviour. We find that the predicting ability of the European monetary authority's words, is similar to the one implied by market-based measures of monetary policy expectations. Moreover, the ECB's wording provides complementary, rather than substitute, information with respect to economic and monetary variables.ECB communication, transparency, monetary policy forecast, empirical reaction function, Euribor rate curve

Watershed rainfall forecasting using neuro-fuzzy networks with the assimilation of multi-sensor information

The complex temporal heterogeneity of rainfall coupled with mountainous physiographic context makes a great challenge in the development of accurate short-term rainfall forecasts. This study aims to explore the effectiveness of multiple rainfall sources (gauge measurement, and radar and satellite products) for assimilation-based multi-sensor precipitation estimates and make multi-step-ahead rainfall forecasts based on the assimilated precipitation. Bias correction procedures for both radar and satellite precipitation products were first built, and the radar and satellite precipitation products were generated through the Quantitative Precipitation Estimation and Segregation Using Multiple Sensors (QPESUMS) and the Precipitation Estimation from Remotely Sensed Information using Artificial Neural Networks-Cloud Classification System (PERSIANN-CCS), respectively. Next, the synthesized assimilated precipitation was obtained by merging three precipitation sources (gauges, radars and satellites) according to their individual weighting factors optimized by nonlinear search methods. Finally, the multi-step-ahead rainfall forecasting was carried out by using the adaptive network-based fuzzy inference system (ANFIS). The Shihmen Reservoir watershed in northern Taiwan was the study area, where 641 hourly data sets of thirteen historical typhoon events were collected. Results revealed that the bias adjustments in QPESUMS and PERSIANN-CCS products did improve the accuracy of these precipitation products (in particular, 30-60% improvement rates for the QPESUMS, in terms of RMSE), and the adjusted PERSIANN-CCS and QPESUMS individually provided about 10% and 24% contribution accordingly to the assimilated precipitation. As far as rainfall forecasting is concerned, the results demonstrated that the ANFIS fed with the assimilated precipitation provided reliable and stable forecasts with the correlation coefficients higher than 0.85 and 0.72 for one- and two-hour-ahead rainfall forecasting, respectively. The obtained forecasting results are very valuable information for the flood warning in the study watershed during typhoon periods. © 2013 Elsevier B.V

Financial crises and bank failures: a review of prediction methods

In this article we analyze financial and economic circumstances associated with the U.S. subprime mortgage crisis and the global financial turmoil that has led to severe crises in many countries. We suggest that the level of cross-border holdings of long-term securities between the United States and the rest of the world may indicate a direct link between the turmoil in the securitized market originated in the United States and that in other countries. We provide a summary of empirical results obtained in several Economics and Operations Research papers that attempt to explain, predict, or suggest remedies for financial crises or banking defaults; we also extensively outline the methodologies used in them. The intent of this article is to promote future empirical research for preventing financial crises.Subprime mortgage ; Financial crises

Multivariate adaptive regression splines for estimating riverine constituent concentrations

Regression-based methods are commonly used for riverine constituent concentration/flux estimation, which is essential for guiding water quality protection practices and environmental decision making. This paper developed a multivariate adaptive regression splines model for estimating riverine constituent concentrations (MARS-EC). The process, interpretability and flexibility of the MARS-EC modelling approach, was demonstrated for total nitrogen in the Patuxent River, a major river input to Chesapeake Bay. Model accuracy and uncertainty of the MARS-EC approach was further analysed using nitrate plus nitrite datasets from eight tributary rivers to Chesapeake Bay. Results showed that the MARS-EC approach integrated the advantages of both parametric and nonparametric regression methods, and model accuracy was demonstrated to be superior to the traditionally used ESTIMATOR model. MARS-EC is flexible and allows consideration of auxiliary variables; the variables and interactions can be selected automatically. MARS-EC does not constrain concentration-predictor curves to be constant but rather is able to identify shifts in these curves from mathematical expressions and visual graphics. The MARS-EC approach provides an effective and complementary tool along with existing approaches for estimating riverine constituent concentrations

Development of Neurofuzzy Architectures for Electricity Price Forecasting

In 20th century, many countries have liberalized their electricity market. This power markets liberalization has directed generation companies as well as wholesale buyers to undertake a greater intense risk exposure compared to the old centralized framework. In this framework, electricity price prediction has become crucial for any market player in their decision‐making process as well as strategic planning. In this study, a prototype asymmetric‐based neuro‐fuzzy network (AGFINN) architecture has been implemented for short‐term electricity prices forecasting for ISO New England market. AGFINN framework has been designed through two different defuzzification schemes. Fuzzy clustering has been explored as an initial step for defining the fuzzy rules while an asymmetric Gaussian membership function has been utilized in the fuzzification part of the model. Results related to the minimum and maximum electricity prices for ISO New England, emphasize the superiority of the proposed model over well‐established learning‐based models

Data-driven Soft Sensors in the Process Industry

In the last two decades Soft Sensors established themselves as a valuable alternative to the traditional means for the acquisition of critical process variables, process monitoring and other tasks which are related to process control. This paper discusses characteristics of the process industry data which are critical for the development of data-driven Soft Sensors. These characteristics are common to a large number of process industry fields, like the chemical industry, bioprocess industry, steel industry, etc. The focus of this work is put on the data-driven Soft Sensors because of their growing popularity, already demonstrated usefulness and huge, though yet not completely realised, potential. A comprehensive selection of case studies covering the three most important Soft Sensor application fields, a general introduction to the most popular Soft Sensor modelling techniques as well as a discussion of some open issues in the Soft Sensor development and maintenance and their possible solutions are the main contributions of this work