Interest rate next-day variation prediction based on hybrid feedforward neural network, particle swarm optimization, and multiresolution techniques

Salim Lahmiri

Physica A: Statistical Mechanics and its Applications, 2016, vol. 444, issue C, 388-396

Abstract: Multiresolution analysis techniques including continuous wavelet transform, empirical mode decomposition, and variational mode decomposition are tested in the context of interest rate next-day variation prediction. In particular, multiresolution analysis techniques are used to decompose interest rate actual variation and feedforward neural network for training and prediction. Particle swarm optimization technique is adopted to optimize its initial weights. For comparison purpose, autoregressive moving average model, random walk process and the naive model are used as main reference models. In order to show the feasibility of the presented hybrid models that combine multiresolution analysis techniques and feedforward neural network optimized by particle swarm optimization, we used a set of six illustrative interest rates; including Moody’s seasoned Aaa corporate bond yield, Moody’s seasoned Baa corporate bond yield, 3-Month, 6-Month and 1-Year treasury bills, and effective federal fund rate. The forecasting results show that all multiresolution-based prediction systems outperform the conventional reference models on the criteria of mean absolute error, mean absolute deviation, and root mean-squared error. Therefore, it is advantageous to adopt hybrid multiresolution techniques and soft computing models to forecast interest rate daily variations as they provide good forecasting performance.

Keywords: Interest rate daily variation; Continuous wavelet transform; Empirical mode decomposition; Variational mode decomposition; Feedforward network; Forecasting (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:phsmap:v:444:y:2016:i:c:p:388-396

DOI: 10.1016/j.physa.2015.09.061

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