A novel logistic-NARX model as a classifier for dynamic binary classification

System identification and data-driven modeling techniques have seen ubiquitous applications in the past decades. In particular, parametric modeling methodologies such as linear and nonlinear autoregressive with exogenous input models (ARX and NARX) and other similar and related model types have been preferably applied to handle diverse data-driven modeling problems due to their easy-to-compute linear-in-the-parameter structure, which allows the resultant models to be easily interpreted. In recent years, several variations of the NARX methodology have been proposed that improve the performance of the original algorithm. Nevertheless, in most cases, NARX models are applied to regression problems where all output variables involve continuous or discrete-time sequences sampled from a continuous process, and little attention has been paid to classification problems where the output signal is a binary sequence. Therefore, we developed a novel classification algorithm that combines the NARX methodology with logistic regression and the proposed method is referred to as logistic-NARX model. Such a combination is advantageous since the NARX methodology helps to deal with the multicollinearity problem while the logistic regression produces a model that predicts categorical outcomes. Furthermore, the NARX approach allows for the inclusion of lagged terms and interactions between them in a straight forward manner resulting in interpretable models where users can identify which input variables play an important role individually and/or interactively in the classification process, something that is not achievable using other classification techniques like random forests, support vector machines, and k-nearest neighbors. The efficiency of the proposed method is tested with five case studies

Applications of Genetic Programming to Finance and Economics: Past, Present, Future

While the origins of Genetic Programming (GP) stretch back over fifty years, the field of GP was invigorated by John Koza’s popularisation of the methodology in the 1990s. A particular feature of the GP literature since then has been a strong interest in the application of GP to real-world problem domains. One application domain which has attracted significant attention is that of finance and economics, with several hundred papers from this subfield being listed in the Genetic Programming Bibliography. In this article we outline why finance and economics has been a popular application area for GP and briefly indicate the wide span of this work. However, despite this research effort there is relatively scant evidence of the usage of GP by the mainstream finance community in academia or industry. We speculate why this may be the case, describe what is needed to make this research more relevant from a finance perspective, and suggest some future directions for the application of GP in finance and economics