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.

Subjective Versus Objective Economic Measures, A fuzzy logic exercise

It is rather evident that there is much more (statistical) information about objective aggregates, such as inflation, output or unemployment than that concerning subjective aggregates, such as well-being, satisfaction, confidence or even expectations. Due to its characteristics, fuzzy logic can and should indeed be used to understand how some of those subjective measures can be approximated by objective ones. This task is accomplished in the paper by the use of Portuguese data on consumer confidence - the subjective economic measure - and on the unemployment rate - the objective economic measure -. The results clearly indicate that to be a worthwhile exercise as the clear importance of unemployment on confidence is only revealed by the fuzzy logic approximation

Learning, Categorization, Rule Formation, and Prediction by Fuzzy Neural Networks

National Science Foundation (IRI 94-01659); Office of Naval Research (N00014-91-J-4100, N00014-92-J-4015) Air Force Office of Scientific Research (90-0083, N00014-92-J-4015

Past, present and future mathematical models for buildings (i)

This is the first of two articles presenting a detailed review of the historical evolution of mathematical models applied in the development of building technology, including conventional buildings and intelligent buildings. After presenting the technical differences between conventional and intelligent buildings, this article reviews the existing mathematical models, the abstract levels of these models, and their links to the literature for intelligent buildings. The advantages and limitations of the applied mathematical models are identified and the models are classified in terms of their application range and goal. We then describe how the early mathematical models, mainly physical models applied to conventional buildings, have faced new challenges for the design and management of intelligent buildings and led to the use of models which offer more flexibility to better cope with various uncertainties. In contrast with the early modelling techniques, model approaches adopted in neural networks, expert systems, fuzzy logic and genetic models provide a promising method to accommodate these complications as intelligent buildings now need integrated technologies which involve solving complex, multi-objective and integrated decision problems

Smart Algorithms to Control a Variable Speed Wind Turbine

In this paper, a robust adaptive fuzzy neural network sliding mode (AFNNSM) control design is proposed to maximize the captured energy for a variable speed wind turbine and to minimize the efforts of the drive shaft. Fuzzy neural network (FNN) is used to improve the mathematical system model, by the prediction of model unknown function, which is used by the Sliding mode control approach (SMC) and enables a lower switching gain to be used despite the presence of large uncertainties. As a result, the used robust control action did not exhibit any chattering behavior. This FNN is trained on-line using the backpropagation algorithm (BP). The particle swarm optimization (PSO) algorithm is used in this study to optimize the learning rate of BP algorithm in order to improve the network performance in term of the speed of convergence. The stability is shown by the Lyapunov theory and the trajectory tracking errors converge to zero without any oscillatory behavior. Simulations illustrate the effectiveness of the designed method

How is Confidence Related to Unemployment in Europe? A fuzzy logic answer

Notwithstanding the numerous applications of fuzzy logic in several fields of economics, it is surprising that, to the best of our knowledge, so very few applications have been made in modelling approximations of subjective economic variables, such as confidence, satisfaction or even expectations, by objective ones, such as unemployment, output or inflation. This gap in the literature is accompanied by a lack on the availability of data concerning those subjective variables. Given that one of the main concerns of fuzzy logic is to capture approximate rather than exact forms of reasoning, and this also characterises many economic situations, such as in fact forming intrinsically subjective measures of confidence, this logic can and should indeed be used to understand how some of those subjective measures can be approximated by objective ones. This task is accomplished in the paper by the use of data on consumer confidence and on the unemployment rate for the pre-enlargement fifteen European Union member states. The results indicate the clear importance of unemployment on confidence, which is a result that should be taken into account when analysing policy-making that, from a naïve and/or easy viewpoint, considers confidence as a relevant variable but ignores unemployment

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

Logic-based Technologies for Intelligent Systems: State of the Art and Perspectives

Together with the disruptive development of modern sub-symbolic approaches to artificial intelligence (AI), symbolic approaches to classical AI are re-gaining momentum, as more and more researchers exploit their potential to make AI more comprehensible, explainable, and therefore trustworthy. Since logic-based approaches lay at the core of symbolic AI, summarizing their state of the art is of paramount importance now more than ever, in order to identify trends, benefits, key features, gaps, and limitations of the techniques proposed so far, as well as to identify promising research perspectives. Along this line, this paper provides an overview of logic-based approaches and technologies by sketching their evolution and pointing out their main application areas. Future perspectives for exploitation of logic-based technologies are discussed as well, in order to identify those research fields that deserve more attention, considering the areas that already exploit logic-based approaches as well as those that are more likely to adopt logic-based approaches in the future