Forecasting foreign exchange rates with adaptive neural networks using radial-basis functions and Particle Swarm Optimization
The motivation for this paper is to introduce a hybrid neural network architecture of Particle Swarm Optimization and Adaptive Radial Basis Function (ARBFPSO), a time varying leverage trading strategy based on Glosten, Jagannathan and Runkle (GJR) volatility forecasts and a neural network fitness function for financial forecasting purposes. This is done by benchmarking the ARBFPSO results with those of three different neural networks architectures, a Nearest Neighbors algorithm (k-NN), an autoregressive moving average model (ARMA), a moving average convergence/divergence model (MACD) plus a na?ve strategy. More specifically, the trading and statistical performance of all models is investigated in a forecast simulation of the EUR/USD, EUR/GBP and EUR/JPY ECB exchange rate fixing time series over the period January 1999March 2011 using the last 2years for out-of-sample testing. As it turns out, the ARBFPSO architecture outperforms all other models in terms of statistical accuracy and trading efficiency for the three exchange rates.
forecasting adaptive radial basis function partial swarm optimization quantitative trading strategies