Financial asset yield series forecasting based on risk-neutral fuzzy bilinear regression and probabilistic neural network

Article type: Research Article

Authors: Wu, Xinhao^{; *} | Lu, Qiujun

Affiliations: Department of Mathematics, University of Shanghai for Science and Technology, Shanghai, China

Correspondence: [*] Corresponding author. Xinhao Wu, Department of Mathematics, University of Shanghai for Science and Technology, Shanghai, China. E-mail: [email protected].

Abstract: Application of quantitative methods for forecasting purposes in financial markets has attracted significant attention from researchers and managers in recent years when conventional time series forecasting models can hardly develop the inherent rules of complex nonlinear dynamic financial systems. In this paper, based on the fuzzy technique integrated with the statistical tools and artificial neural network, a new hybrid forecasting system consisting of three stages is constructed to exhibit effectively improved forecasting accuracy of financial asset price. The sum of squared errors is minimized to determine the coefficients in fitting the fuzzy autoregression model stage for formulating sample groups to deal with data containing outliers. Fuzzy bilinear regression model introducing risk view based on quadratic programming algorithm that reflects the properties of both least squares and possibility approaches without expert knowledge is developed in the second stage. The main idea of the model considers the sub-models tracking the possible relations between the spread and the center, also linking the estimation deviation with risk degree of fitness of the model. In the third stage, fuzzy bilinear regression forecasting combining with the optimal architecture of probabilistic neural network classifiers indicates that the proposed method has great contribution to control over-wide interval financial data with a certain confidence level. Statistical validation and performance analysis using historical financial asset yield series on Shanghai Stock Exchange composite index all exhibit the effectiveness and stability of the proposed hybrid forecasting formulation compared with other forecasting methods.

Keywords: Financial asset yield series forecasting, fuzzy bilinear regression, probabilistic neural network, symmetrical triangular fuzzy number, risk-neutral

DOI: 10.3233/JIFS-202927

Journal: Journal of Intelligent & Fuzzy Systems, vol. 40, no. 6, pp. 11829-11844, 2021